How to Address a Low Credit Score

When your credit score falls below 600 points, it’s time to think about bringing yourself into a safe zone. The average credit score is about 700, much higher than in years past.

Check whether it’s accurate

First review a free copy of your report at www.annualcreditreport.com. If you request it from TransUnion, Equifax, or Experian, you’ll have to pay a fee. A credit report is based on how well you have borrowed money and repaid it. You can tell something is off if two or more credit scores don’t match or you know you paid off debts on time but your score is low. If you see an error, call up the agency that issued it and dispute it. You may have to dispute a significant error with all three credit reporting agencies at once.

Pay off all debts on time

Determine which bills are due first and pay them off in order. Your credit rating goes down if you make a late payment. One missed payment can cause your score to drop between 100 to 300 points. The number of days you are late makes a difference. You should prioritize the largest amounts. The higher the balance, the more significant the effect on your credit score. This is why you can earn a low credit score from paying off only the minimum monthly amount.

Credit reporting agencies look at all types of credit; credit cards, auto loans, and mortgages. Pay off all your debts in equal measure whenever possible.

As you plan future expenditures, scatter your debt among your credit cards. You want to be as far below your credit limit as possible on each card. If you have an installment loan, avoid paying it off all at once. The credit reporting agencies want to see you have the potential to pay off a debt. Avoid closing unused credit cards and do not open new lines of credit you do not plan to use.

Deal with collection accounts

Pay off debts that have gone to collections. You may be able to strike a deal with a collection agency. Sometimes if you repay the amount in full, they will stop reporting the debt to the credit bureaus. Get deals like this in writing. Deal with the oldest debts first. Be patient because a collection account takes seven years to come off your credit history.

Ask for a forbearance on student loans

Requesting a forbearance on student loans will not hurt your credit. If you are short on cash, this is a better option than default. Default is defined as missing a payment for 270 days, or nine months, straight. You can also request switching to an income-based repayment option.

Wait for results

It can take three to six months for your actions to begin having an effect on your credit score. The credit reporting agencies want to see that your actions are consistent. It usually takes two years to restore a credit score.

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