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How Do I Clear Bad Credit?

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If you have a bad credit score and wish to make amends – don’t worry, there are many ways you can improve your credit rating. Habits such as paying off bills on time, paying off existing debt repayments alongside ensuring you do not take out any risky loans will all contribute towards improving your credit score. 

However, before doing so, it’s also key to understand why you have a bad credit score in the first place. This way, you can find out specifically where you need to improve your finances. 

What Is a Credit Score?

For those that don’t quite know, a credit score is a 3 digit number that indicates how reliable you are at borrowing and repaying money. In other words, a credit score represents an individual’s ‘creditworthiness’. The number falls between 300 to 850. 

Generally, a good credit score falls within the region above 690. Meanwhile, a poor, or bad credit score in the US, can fall within the range of 300 to 629. Luckily, there are ays to improve your credit score.  

What Will Happen If I Have Bad Credit?

Having a bad credit score can have serious financial consequences and limit your chances for employment, properties, loans and more.

It’s never a good idea to have a bad or very bad credit score. But, it happens – life can be unpredictable and especially finances. However, here are some ways that having a bad credit score can affect you financially and personally: 

  • Lower Loan Acceptance: You’ll be less likely accepted for loans (mortgages, car loans, personal loans and some student loans) or credit cards.
  • Rental Applications: A bad credit score may prevent you from securing a property, as landlords will conduct credit checks to evaluate your history to predict if you’ll pay rent on time. 
  • Job Opportunities: Employers may also conduct similar background credit checks to see how you handle money. 

So, not only does having a bad credit score limit your chances of securing a loan but it may also affect your chances of finding a new home or job. But, don’t worry, there are ways to improve your credit score. 

What Shall I Do to Clear Bad Credit?

Here are several ways you can begin to rebuild your credit score. 

But, before doing so, check your credit score and see what factors might be most affecting it. This way, you’ll be able to directly target the most damaging issues as credit scores can be impacted by several things: poor payment histories, credit utilization rates, length of credit, how credit is being spent as well as what type of loans (mixed credit) you have open.  

You should also check to see if there are any errors on your credit report, including inaccurate personal information or accounts fraudulently opened in your name, as you will be able to dispute this and prevent yourself from being left with an unwarranted poor score. 

Once you are certain that your report is correct and you know what is affecting your credit, you can begin to try and make the necessary amendments. Here is a rundown of some of the best ways to help your score improve:

1. Pay Your Bills On Time

This is perhaps the most important factor to your credit (accounting for 35% of your FICO overall), and so, should be addressed by anyone trying to improve their credit score. 

To do this, you could set up autopay for recurring installment bills, try and change payment days if they fall on the same day to ensure you have enough funds for them all, and always be upfront with your creditors so they can help amend your repayment plan if necessary. 

2. Pay Back Debt

Accounts owed make up 30% of your FICO score so you should try and pay off your debts at the end of every month. To do this, a balance transfer card can help you with an interest-free period to pay off balances. But, you should always ensure you make a repayment plan to keep you motivated and try to build budgeting habits so you can save up the money you need to pay back your debts.

3. Avoid New Hard Inquiries

A hard inquiry is when a lender checks your credit and the check appears on your credit score. However, as applications for new credit amount to 10% of your FICO score, it would be best to try sticking to soft inquiries and checking your own score as this does not appear on your report and so can help prevent your score from decreasing.

4. Seek Extra Financial Help

You could open a secured account where you place cash in an account and the card issuer allows you to borrow a certain percentage of the money. You could also work with a cosigner for a loan so a lender can consider them jointly responsible for the debt, or get a budgeting app to prevent you from having to take out any more risky loans and learn how to save and budget your money instead. 

Why Is It Important to Clear Bad Credit?

Evidently, a bad credit score can impact your personal and financial life in many ways. Having a good credit score is proof of your ability to handle money. If a lender trusts that you will pay off a loan, they will be more likely to give you one, and if a bank believes that you can borrow and repay in good time, they will be more willing to give you a credit card with better rates.

This may become especially important, if for example, you need to take out a loan because you cannot cover your costs for the month ahead. If an unforeseen event – such as a family or household emergency – happens to you and you need to take out a loan, it will be important that you can do so. 

If you cannot, you may need to turn to alternatives such as payday loans. While payday loans have their own individual benefits, these are not a suitable option for everyone with a bad credit score.