6 Methods to Track & Fix a Bad Credit Score

Your credit score is what lenders and creditors will use to determine whether to give you a new credit card, a car loan or a mortgage. While it may not be impossible to do these things with a poor credit score, it is much easier with a score that’s in the good-to-excellent range.

Our Addition Financial members often ask us how to fix bad credit. The good news is that there are some legitimate methods you can use to track your credit score and fix bad credit, so you can pursue your financial goals. Here’s what you need to know.

Why is Checking Your Credit Score Important?

Your credit score is calculated using algorithms developed by FICO and Vantage and reported by the three major credit bureaus, Equifax, Experian and TransUnion. While creditors may look at your credit details that appear on your credit report, many rely on your credit score as a snapshot of your financial situation and reliability.

In a perfect world, your credit report – and thus, your credit score – would contain only accurate information. Since we don’t live in a perfect world, it’s essential to check your credit score regularly to ensure it’s an accurate reflection of your ability to manage money.

Some of the most common mistakes people find on their credit reports include incorrectly reported delinquencies, fraudulent accounts and charges and information belonging to another person. Pulling your credit report once a year and checking your score can help you identify mistakes and rectify them.

It has always been your right to obtain your free credit report copy once a year from each credit bureau. You can get your free reports by visiting AnnualCreditReport.com. Thanks to the COVID-19 pandemic, all consumers may request a free report once a week through the end of 2022.

What Are the Factors That Affect Your Credit Score?

If you have a checkered credit history, you should know which factors impact your credit score before you try to fix a bad credit score. The primary factors that determine your FICO score include the following:

  • Payment history, which focuses on the timeliness of payments, accounts for 35% of your FICO credit score.
  • Credit utilization, which is a measure of what percentage of your total available credit you use, accounts for 30% of your FICO score.
  • Length of credit history, which measures how long you have had credit, accounts for 15% of your FICO score.
  • Credit mix, which is determined by reviewing the types of credit you have (credit cards, retail accounts, installment loans and mortgages), accounts for 10% of your FICO credit score.
  • New credit, which applies when you open multiple new accounts in a short period, can account for up to 10% of your FICO score.

The other company that scores credit is Vantage, but they don’t release specific percentages for their algorithm. The most important thing to know is that they agree with FICO that credit history and credit utilization are the two most important factors in determining your credit score. Now, here are six ways to track and fix a bad credit score.

#1: Credit Monitoring Services

It’s important to track credit score information and make sure that your report is accurate, but what’s the best way to do it?

Since you can only pull your credit report once a year for free, one thing we suggest is working with a credit monitoring service to track your credit score.

Credit monitoring services provide up-to-the-minute information about your credit report, so you always know what’s going on with your score. You’ll pay a monthly fee, but in return you’ll get notifications of new activity and the option to look at your credit report at any time. 

#2: Pull Free Credit Reports and Check for Errors

Another way to track credit score information is to pull your credit reports regularly, as we noted above. Since you can pull your credit report once a week through 2022, this is an easy and affordable way to track your credit score and we recommend it because it’s free and easy to do.

Keep in mind that while you might think all three bureaus have the same information, that’s not always the case. Mistakes can happen and for that reason, you should pull all three and compare them. It’s not a good idea to rely on one report to determine whether your information is accurate.

When you do pull your reports, make sure to review them for errors. Keep an eye out for the following:

  • Accounts you don’t recognize
  • Delinquencies that you have paid
  • Incorrect name, address, employment or Social Security number

If you spot any errors, make sure to contact the credit bureau and dispute the credit information. All requests should be submitted in writing and include copies of supporting documentation. The Federal Trade Commission website has detailed instructions and links here.

Keep in mind that according to attorney David Clark of The Clark Law Office, you have the right under the Fair and Accurate Credit Transactions Act (FACTA) you have the right to review and dispute any charges on your credit report due to identity theft. You may need legal advice to deal with all the potential ramifications of identity theft.

#3: Make Timely Payments

We’ve already told you that your payment history is the single most important determining factor of your credit score. David Clark also told us:

“You can rebuild your credit legally through timely payment of bills.”

You might think that making on-time payments would take a long time to help you achieve a good credit score. However, the truth is that if you bring delinquent accounts current and make on-time payments, you can see a significant increase in your score within one to three months. Continued on-time payments will raise your score further.

#4: Pay Down Your Debt

Another proven method to fix a bad credit score is to pay down your debt. Remember, debt utilization is the second most important factor in determining your FICO score, so it stands to reason that reducing your debt would raise your score. However, this won’t provide an immediate fix.

Let’s look at an example. Say you have a credit card with a delinquent balance. You get a bonus at work and decide to pay the entire balance. Paying it wipes out the delinquency and reduces your credit utilization, both of which should have a positive impact on your score. However, it takes time for the credit card company to report the payment. For that reason, it may take one or two months for the payment to appear on your credit report.

If you’re carrying a lot of debt and you have delinquent payments, you can make a big impact on your score by creating a debt repayment plan and sticking to it with on-time payments.

#5: Increase Your Card Limits

If your credit score is lower than it should be due to high credit utilization, there’s another method you may want to try to increase your score. If you are in good standing with your existing credit card company, then applying for an increase in your card limit will automatically decrease your utilization once your new credit limit is recorded.

While increasing your limit is a legitimate way to improve your score, a word of caution is in order. A higher limit won’t help you if you increase your spending. Instead, work on paying down your existing credit card debt and use credit cards responsibly to raise your score. 

A related issue along the same lines is what to do with accounts you don’t use. You might think that canceling an old credit account might raise your score but, in fact, the opposite is true. The credit limits on unused cards contribute to your total credit limit and can help you keep your utilization rate low, so leave them alone unless you have a good reason to cancel them.

#6: Protect Yourself Against Identity Theft and Fraud

Another suggestion that Attorney David Clark made to us is that it’s always a good idea to take steps to secure your accounts from identity theft and fraud. One way is to do what we suggested above and enroll in a credit monitoring service.

You may want to consider putting a credit lock or freeze on your credit report. A credit freeze is a federally codified right that allows consumers to protect their credit after a fraud or theft has taken place. A credit lock is a commodity, typically offered as a service by a credit reporting company. The benefit of a lock is that you can lock and unlock your credit at will and get preemptive protection against fraud.

We’ve talked about other methods to use, but let’s run through a few of the most important ones to make sure you know them:

  • Use strong passwords for all financial accounts, including your bank account, credit card accounts and financial apps, as well as any password tracking tools you may use. A strong password should include a combination of capital and lowercase letters, numbers and special symbols and, ideally, you should use a random combination that nobody can guess.
  • Change passwords regularly or at any time that you suspect someone has accessed your account or used a card without permission.
  • Protect yourself online by using a mobile wallet instead of entering your card information. Mobile wallets provide an encrypted, one-time-use code to vendors. Even if the vendor experiences a security breach, the thief won’t be able to use your information.
  • Never let anybody use your credit card and keep it in a secure place when you’re not using it.

These protections will minimize the risk of fraud and prevent anybody from taking actions that will lower your credit score.

It might be disheartening to have a poor credit score, but the six methods we have outlined here can help you track and fix your credit, so you can buy a new car or home without worry.

Are you in the market for a credit card to help you repair your credit? Click here to learn about Addition Financial’s Opportunity Credit Building loans!

The content provided here is not legal, tax, accounting, financial or investment advice. Please consult with legal, tax, accounting, financial or investment professionals based on your specific needs or questions you may have. We do not make any guarantees as to accuracy or completeness of this information, do not support any third-party companies, products, or services described here, and take no liability or legal obligations for your use of this information.