One-third of Americans have a credit score of lower than 601. That’s in the fair to bad group. And you know that’s not good.
Having bad credit can really affect your ability to build the life you want. This score helps determine if you are eligible for loans to buy a house, car, or even an extra big toy like a boat.
If you are in that third, don’t lose hope! With a little bit of patience and diligent effort, you can get a better credit score.
But make sure to avoid these seven mistakes that can hurt your chances.
1. Closing Old Credit Cards
Once you’ve made the decision to improve your credit, it might be your next impulse to cut up and cancel all of your credit cards. But hold off for just a minute!
It’s true that credit cards can cause a lot of problems. In fact, they are probably one of the main reasons that people have bad credit scores in the first place. But they are also beneficial to your score if handled correctly.
Having a credit card account that is under control, meaning not maxed out with a mountain of debt behind it, can show that you are responsible when loaned money.
Those kinds of credit card accounts boost your overall score.
2. Keeping a Credit Card Balance
While you want to have credit card accounts, you don’t want to hold a major balance for a long period of time. And that is why credit cards are a confusing piece of the puzzle.
Credit card debt is one of the most common types of debt, which makes sense since it can rack up so quickly. Always, but especially when you’re trying to improve your credit, you want to strike the right balance of having and using a credit card but not keeping a high balance.
During this period of trying to increase your credit score, it may be better to not use them and keep your credit card balance at zero.
3. Increasing Debt
When you are trying to increase your credit score, the main focus of all of your financial decisions should be paying off debt.
If you are working towards getting rid of these payments each month, it may seem pretty obvious that you wouldn’t want to add to that debt. But it is common for people to see a slight increase in their score and then go and take out a loan.
Just because you can get approved for a loan doesn’t mean you are done improving. Be patient and don’t take out the first loan you can. Continue to work your plan until you’ve reached a good score.
4. Filing for Bankruptcy
A poor credit score can make you feel hopeless. Many people feel trapped in their circumstances with no light at the end of the tunnel.
These feelings often lead to filing for bankruptcy but this can be a big mistake.
Often bankruptcy is seen as the only option out of the mess but it can actually cause a bigger mess. Having a bankruptcy in your history can really lower your credit score and that type of transaction isn’t easily undone.
Instead, you could work with a legitimate financial counselor who can show you other alternatives. There are options to negotiate with your creditors as well.
5. Disputing Every Point
If you decide to try to negotiate with creditors to get some of your entries removed, be careful not to dispute every single item.
It’s just not necessary to have everything removed and it also makes you seem less legitimate to the creditors. When you come to them saying they all should be removed it seems overzealous and like you’re just trying to get out of everything.
Taking no responsibility for any of the negative entries can cause the creditors to just dismiss you all together and not relieve anything.
Instead, focus on the most detrimental entries that can be responsibly disputed. And then moving forward with better actions and habits in the future to make a difference in your credit score.
6. Dismissing Improvement Opportunities
One of the biggest pitfalls of credit score improvement is just inaction. If you have a bad credit score, you know the basics of what you need to do. But that requires discipline and effort, which we don’t always want to do.
The work it takes to raise a credit score isn’t very fun so often people don’t do what it takes.
A mistake that people often make is to go half-in on these habit changes. They don’t do all of the work necessary, focusing on just a few debt-sources and letting others continually increase.
If you are trying to improve your credit score, you need to work on the whole picture.
7. Failing to Check Your Credit Score
One of the worst things you can do if you have a poor credit score is to ignore your score.
There are many opportunities to check your credit score and see where things are at. If you have an ideal credit score you are working towards you can keep track of the progress.
This type of monitoring can allow you to see what is working and where you can make more improvements. The process to a raised credit score is slow and steady. There is a method and it has to be one step at a time.
When you can see progress being made it will keep you motivated to continue on.
Get a Better Credit Score
When you are ready to get your credit score back on track, it’s important to put a plan in place. That plan should include things you are actively going to do to reverse the damage done.
But it should also include things you are consciously not going to do.
A better credit score can be the gateway to some major dreams coming true for you. So be patient and get to work!
If you would like to learn more about smart money management and financial planning, check out some of our other articles!