Finance

What to Do if You Have Bad Credit

best credit cards for bad credit

A bad credit score is not the end of the world, but it can make life more difficult and costly. A poor credit score makes it harder to buy a new car or home or get a loan. While some institutions specialize in loans and credit for people with poor credit, these institutions often charge high-interest rates and require a cosigner or some form of collateral. The good part is that bad credit doesn’t have to last a lifetime. So here’s what you should do to turn a bad credit score into a good one.

Take a look at Your Credit Report

It’s hard to know where you’re going if you don’t know where you are. To raise your credit score, you have to know what it is and why your score is low. Some websites and apps give you free and regular access to your credit report, and getting access will not affect your score. Remember to get a copy of your credit report from all three bureaus.

Dispute Mistakes

After you look at your credit report, dispute any errors you find. Disputing a mistake on your credit report can take time, and you will likely have to provide documentation or proof that the information is incorrect. Still, a favorable resolution on your behalf can improve your credit score.

Apply for a Secured Credit Card

Some of the best credit cards for bad credit often require a deposit into a bank account, which acts as collateral for your credit. For example, you might think getting another credit card is a wrong choice if you already have bad credit, but a new credit card can help improve your credit score when used wisely.

According to Lantern by SoFi, “Since using a credit card responsibly can actually help to improve your credit score, getting a card may be something that people with bad credit should consider, even if it seems challenging.”

Pay Your Bills On-time

Even with the best credit cards for bad credit, you have to make your payments on time. Even if you only pay the minimum due amount, make your payments on or before the due date. Paying your balance each month will help to improve your credit score faster than paying the minimum each month and keeping a balance on your card.

Limit Credit Card Use

It would help if you used your credit sparingly and wisely. Using plastic money to buy something you want is more accessible than waiting until you have enough money to pay for it outright. Still, you should avoid making unnecessary purchases as much as possible. For example, you should set a goal for less than a 30 percent credit utilization ratio. To figure out your credit utilization ratio, you must divide your total balances by your total credit amount. While it may be tempting to use your credit cards to make new purchases, try to make small purchases that you can pay off quickly.

Bad credit doesn’t have to last forever. With discipline, planning, and time, you can turn your credit score around and enjoy the perks of having good or excellent credit.

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