How To Fix A Bad Credit Score?

An individual’s CIBIL Score or Credit Score plays a significant role in determining their creditworthiness. It is a score that is determined on the basis of how well you manage your finances. It is on the basis of credit score only that an applicant gets approved for any type of loan or a credit card. His application might get rejected if he does not have a good credit score. Any score falling below the score of 550-580 is considered to be a bad credit score and there can be many reasons for such type of score. Failing to pay EMI’s on time, defaulting in repayment of credit card bills, overutilization of credit cards, etc can be a few reasons to name for a bad credit score. But this does not mean that now it would be impossible for an individual to have a credit card or a loan.

There are various ways in which we can fix a bad credit score and then the individual can easily enjoy the perks of having a credit card. But before discussing the ways to fix a bad credit score, let us first understand what actually is a bad credit score.

Bad Credit Score – Meaning

A credit score is a numerical representation of an individual’s creditworthiness. A credit score can range anywhere between 300 to 900. If a credit cardholder wants to enjoy the benefit of financial tools, he should try to keep his credit score well above. Now, any score that falls below the range of 550-580 is considered a bad credit score. An individual’s credit score can fall below this range because of various reasons such as delayed or missed bill payments. An individual needs to pay severe attention and take appropriate measures to improve his credit score so that he can take advantage of financial instruments such as credit cards, any type of loan, etc.

Suggested Read: 7 Ways to Increase Your Credit Score

Reasons behind a bad credit score

There are various factors that affect your credit score in a negative way and can ultimately lead to a bad credit score –

Delay in payment of credit card bills and EMI’s:

One of the major factors that affect your credit score in an adverse way is a delay in the repayment of credit card bills and EMI’s of any type of loan. A cardholder should avoid any type of delay in payment of such types of installments. Also, if you make any kind of delay in the payment of these installments and bills, not only your credit score will be affected but you will have to pay a massive interest charge and late payment fee as well.

Having multiple credit cards:

Owning multiple credit cards can also lead to a decline in your credit score because whenever you use multiple cards, you tend to forget the due dates of the credit cards which leads to a delay in bill payments which will hence impact your credit score. Also, applying for multiple credit cards shows your greediness towards credit which also portrays a wrong picture in front of the credit card issuers. Additionally, whenever you apply for a new credit card, the card issuers place a hard inquiry on your credit score which impacts your credit score in a negative way.

Maintaining a high credit utilization ratio:

An ideal credit utilization ratio is 30% of the available credit limit. With this, we mean that an individual should not use more than 30% of the available credit limit. If you use more than 30% then it will show your over-dependency on credit and will depict that you are not able to manage your finances. Overutilization of the credit utilization ratio will have a negative impact on your credit score.

Errors in a credit report:

An individual should keep a check on his credit report as this report is a summary of all his personal information, all credit accounts in his name, repayments, etc. If there creeps in any error in your credit report, his credit score will start going down.

Also read: How to Dispute and Fix Credit Report Errors

Ways in which you can fix a bad credit score

Having a bad credit score can lead you to various situations wherein you cannot take advantage of the financial tools present in the market. But this will not be the case always. A credit cardholder can always fix his bad credit score by following some basic practices. Following are the ways in which this can be done –

Keep a check on your credit report:

The first and foremost step in improving a credit score is to keep a check on the credit score. You should thoroughly check the credit report and inform them about the discrepancies to the credit bureau. If all the suspicious and incorrect information is removed from your credit report, your credit score will start getting better.

On-time bill payments:

Another step that can help an individual in mending his credit score is by paying all his credit card bills and installments on time, i.e., before the due dates. An individual should take care that he repays his bills on time and in full. If you have multiple credit cards, what you can do is either pay the highest interest-bearing debts first or pay the lower debts first and then concentrate on paying the highest interest-bearing debt. But make sure to pay the bills on time which will be another step in credit score improvement.

Lower the credit utilization ratio:

Another major factor that can help you mend your credit score is by lowering your Credit utilization ratio. A low credit utilization ratio will show low dependency on credit, and hence will help you in improving your credit score.

Request for a credit card with a higher limit:

If an individual knows that he uses his credit card very frequently, therefore instead of over-utilizing his credit utilization ratio, he can place a request with the issuer bank for a credit card with a higher credit limit. With this, his credit utilization ratio will automatically decrease and will hence have a positive impact on his credit score.

Bottom Line

A bad credit score or low credit score is nothing but a result of an individual’s mismanagement in terms of his finances. Instances such as delayed bill payments, overutilization of credit utilization ratio, etc can lead to a bad score. But it is not mandatory, that if a credit score is score has gone below a certain point, then you cannot improve it. A bad credit score can always be improved by following some basic steps such as on-time bill payments, keeping a credit utilization ratio, getting a credit card with a higher credit limit, etc. Though in this way credit scores can be improved it is a slow process. Re-building a credit score is not an impossible task but the cardholders will have to maintain consistency and patience during this process.