Bad credit is no laughing matter. And if you apply for an auto loan, mortgage loan or personal loan with poor credit, the lender may reject your application. Credit scores range from 300 to 850, and approximately 1 in 5 Americans have a bad credit score. Although credit health is a reflection of credit habits, other factors can play a role in bad credit, such as an illness, a divorce or job loss.
Unfortunately, you can’t snap your fingers and wish bad credit away. But you can change the way you manage your credit and debt. Applying for a credit card and using credit on a regular basis is one of the best ways to improve your credit. Reversing a low credit score involves replacing negative information on your credit report with positive information. Most creditors report to the bureaus each month, and if you adopt responsible credit habits, this increases your number of positive updates and raises your credit score.
Here are four ways to improve your credit with a card.
Apply for the right type of card.
Research creditors that specialize in credit cards for bad credit and only apply for these types of credit cards. Each credit inquiry or application reduces your credit score by a few points, and if you apply for credit cards that you don’t qualify for, you can cause further damage to your credit score. A secured credit card is a good match. These credit cards do not require good credit, and you can get approved with a security deposit and steady income.
Make sure the lender reports to the bureaus.
Not every lender reports to the credit bureaus. Once you’ve located the right credit card, contact the lender to see if the company reports to the three major credit bureaus. Ideally, you want to work with a creditor who reports to all bureaus on a monthly basis. The more positive updates you receive, the better.
Pay your bills on time
Timeliness can make or break your credit score. Your payment history makes up 35% of your credit score, and paying your bills on time each month is one of the fastest ways to improve your rating. Use your credit card each month, and make your payment by the due date. Although creditors only report lateness if your account is 30 or more days past due, paying late can result in a late fee.
If you have a secured credit card, your creditor may switch your account to an unsecured credit card and refund your security deposit. However, this change is subject to a good payment record. A history of paying late makes it harder to obtain an unsecured credit card.
Pay off balances each month
Another credit score booster: keep a zero balance on your credit card. Using your credit card keeps the account active, which is important because some creditors will not report to the bureaus if an account is inactive. But while you want to use your credit card, you should also pay off your balance each month. This keeps your debt in check. Besides, the less you owe, the faster you can improve your FICO score. The amount you owe makes up 30% of your credit score, and if you max out your account or keep a high balance, it’ll take longer to build your credit score.
