What Should You Do if You Have Bad Credit?

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bad credit score
bad credit score

Although a new study shows credit scores in the U.S. have never been higher, not everyone is so lucky.  According to Experian’s Consumer Review, the average U.S. score of 710 breaks a new record. But for averages to work, some people’s scoresfall well below this mean.

Bad credit has a big impact on your life, affecting everything from the type of loans you qualify for to the jobs you can get. 

Life is a lot easier when you have good credit, so here are some tips to help you brush up your score.

Borrow Only in Emergencies

Credit scores are a popularity contest in the financial world. People with high scores are creditworthy. To lenders, this means there’s a high likelihood you’ll pay back what you owe them without trouble. 

Low scores, on the other hand, indicate you’ve run into problems in the past. To lenders, this suggests you might run into them again if they lend you funds. As a result, lenders may apply higher rates to offset the risk you represent.

For this reason, financial advisors recommend waiting to borrow until you’ve pulled up your score. But this advice doesn’t always work in the real world.

Accidents happen, sending you to the ER when you have no savings. Your car can break down after you’ve already sunk money into replacing its brakes. These expenses don’t care whether you’re a prime borrower, so you may have to borrow before you can buoy your score.

If that happens, compare your rates carefully, looking for local online loans by specifying your state and city. So,for example, if you live in Memphis, TN, you’ll want to compare MoneyKey’s line of credit in Tennessee to other online loans Memphis has to offer. 

Create a Good Payment History

One of the most important factors involved in generating your score is your payment history. It’s simple — lenders like to see that you pay your bills on time. 

While everyone makes mistakes from time to time, you’ll want to make it your mission to pay on or before the due date every time. The fewer late payments (or delinquencies) you have on your record, the higher your score will be.

Pay Down Debt

The first step will help with the second one. But to be truly effective, you’ll want to consider making extra payments that go above and beyond the minimum payments. 

This is a good idea for online installment loans, as paying off this debt will free up extra cash. But it’s especially helpful when it comes to your line of credit (LoC). Here’s why: 

Utilization Rate

As the second-most important factor influencing your score, utilization rate represents how much of your total limits you use. Most people should aim for 30 percent or less. However, you’ll have to keep your utilization below 10 percent if you have a goal of a perfect 850 in mind.

Emergency Preparedness

By keeping your utilization rate low, you’ll have more of your limit on standby when another emergency comes your way. 

Cost-Savings

Even the best line of credit Tennessee has to offer will charge you for your balance. Making more than the minimum payments may help reduce what you pay in these charges. 

The Takeaway

No score is permanent — not even the worst of the worst. In time, you can bring up a low score as long as you follow these basic tips. Make them a habit, and do your best to improve your score before you have to borrow again.

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