Ed Note: A low credit score isn’t the end of the world. In fact, it’s totally fixable. Amelia Granger of NerdWallet explains a few steps you can take to repair yours over time.
Did you just find out you have a bad credit score? You might be freaking out right now—imagining that you’re doomed to sky-high interest rates and bank-breaking insurance premiums for the rest of your life. Calm down! While it’s definitely true a bad credit score can negatively affect many aspects of your life, with a little effort, you can boost your score back to healthy levels.
First of all, let’s make sure you understand exactly what a credit score is, and why it holds so much power. Your credit score is a three-digit number companies use to determine your financial risk. A few different organizations calculate your score, but your primary credit score comes from the Fair Isaac Corporation, or FICO. FICO credit scores range from 300 (worst) to 850 (best). It is determined by a few important factors such as: your payment history, any debts you might have, the length of your credit history and the number of times your credit history has been checked.
Now you that you know what your credit score is—and maybe are starting to see how yours got so bad in the first place—let’s talk about how to fix it.
Stop shopping for apartments. If you apply for a lease, a prospective landlord will usually run a credit check. These inquiries into your credit score can actually lower it. While it might not go more than a few points down, try to limit lease applications, or other activities like applying for a car loan, that involve credit inquiries. If you are a renter looking for a new place, try finding one that will allow your roommate’s name to be on the lease, or a long-term sublet arrangement.
Get a credit card and use it responsibly. If you don’t have and use a credit card already, it’s not a bad idea to start now. But you must pay it off in full every month for it to have a positive effect on your credit score. The average American household owes more than $7,000 in credit card debt – and that’s a drag on their credit scores. But using a credit card for careful spending within your means will help you build a positive credit history, and raise your score.
Build systems that eliminate late payments. If you pay your bills late, think long and hard about why you do it, and what kind of system could keep you on track. Could you add reminders to your work calendar? Can any of your bill payments be automated? Even the most responsible person can struggle to remember all the various expenses of day-to-day life and when those bills come due—the key to never missing a payment is to have a foolproof system.
Don’t take out too many credit cards at once. If you’re going to get a credit card for the sake of raising your score, just get one, not 10. New lines of credit lower your score, so remember you need to take it slow and steady.
Don’t close out old credit cards. An old card with a solid repayment history is a big asset in beefing up your credit score. If you do get a new one for any reason, don’t close out the old.
Celebrate annual “Check Your Credit Report Day.” Okay, I don’t know if this is a holiday, but it should be! Your credit score is basically a distillation of your credit report—an in-depth look at your credit history and open lines of credit, and you can get a free credit report once a year. So be sure to check yours annually. Mix-ups happen more than you might think, and you could have the deadbeat debts mistakenly attached to your financial history. Get in the habit of policing your credit report for any errors.
You may have heard that checking your own credit report counts as a credit inquiry, like the landlord checking your credit we discussed above. But in fact FICO only factors in credit inquires that result from your applications for new credit. So don’t be shy about checking your score. Remember, however, that while credit report is free once a year—generally there’s a fee for checking your score. The free report also is a summary of everything that makes up your score, so often monitoring the report with care is enough to make sure you’re staying on the credit-worthy track.