If you've made financial mistakes in the past, chances are your credit score has taken a significant hit. Bad credit can make it difficult to purchase a car or home, get a cell phone or even secure employment. While a number of companies advertise credit repair services, the legality of their practices can be questionable. If you have bad credit, there are a number of ways to legally improve your credit score over time.
Pay Down Debt
If you have a large amount of debt, one of the easiest ways to improve your credit is to simply pay it down. According to myFICO, 30 percent of your credit score is based on the amount of debt you owe versus your actual credit limit, otherwise known as your credit-to-debt ratio. If your balances are close to or at your credit limit, this can cause your credit score to drop. Too much debt can also cause lenders to view you as a financial risk when applying for new credit. The Motley Fool recommends paying down unsecured and revolving debts first and then attacking mortage, vehicle or student loan debt.
Pay Bills on Time
Having just one late or missed payment can cause your credit score to take a nosedive. According to myFICO, 35 percent of your credit score is determined by how you pay your bills. The longer an account goes unpaid, the longer it takes for your credit to recover. If you have trouble remembering to pay bills on time, considering setting up automatic payments through your bank in to avoid missed payments. If you are unable to make your minimum payments, contact your creditors before your payment is due to see if an alternate arrangement can be made.
Dispute Errors
If you don't check your credit report regularly, you may not be aware of potential errors or inaccurate information that may be hurting your score. According to Bankrate, approximately 70 percent of credit reports contain significant errors that can lead to consumers being denied credit. Fortunately, the Fair Credit Reporting Act requires credit reporting agencies to investigate consumer credit disputes and remove erroneous information. You can get a free copy of your credit report through the Annual Credit Report website. You should check your credit report for accuracy at least once per year.
Limit New Credit Applications
If your credit score is already low, applying for new credit can actually make it worse. According to myFICO, 10 percent of your credit score is determined by the number of times lenders pull your credit. If you are attempting to consolidate debt, for example, multiple inquiries for loans or new credit lines can make you appear desperate to lenders. If you're shopping for a home or vehicle loan, The Motley Fool recommends grouping your inquiries within a shorter time frame since the credit scoring system treats multiple requests for these types of loans as a single inquiry.
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