According to data from 2020, the average credit score in the United States was 711. A credit score of 307, therefore, falls almost 400 points below that average, putting you in a tough spot when it comes to borrowing money or getting approved for credit cards. If you’re one of the millions of Americans struggling with a poor credit score, fear not. This guide is here to help you turn things around and start rebuilding your credit.
1. Understand Your Current Situation:
Before you can start improving your credit score, it’s essential to know exactly what got you there in the first place. If you’ve missed payments or have a lot of outstanding debts, those factors will have a significant impact on your score. Start by getting copies of your credit reports from all three major credit bureaus (Equifax, Experian, and TransUnion). Check for any errors or inaccuracies, such as accounts that you don’t recognize or late payments that you believe you made on time. If you find any mistakes, file a dispute with the credit bureau to have them corrected.
2. Start Making On-Time Payments:
The most crucial factor in determining your credit score is your payment history. Late payments, missed payments, and collections can all seriously damage your credit, so it’s essential to start making on-time payments as soon as possible. If you’re struggling to make payments, consider talking to your creditors to see if you can negotiate a lower payment or a payment plan. Your payment history makes up 35% of your credit score, so this is a crucial step in the credit-building process.
3. Reduce Your Debt:
Your credit utilization (the amount of credit you’re using compared to your total available credit) is another significant factor in determining your credit score. The more you owe, the higher the risk of defaulting, which is reflected in a lower credit score. Start by paying off your highest-interest debts, such as credit cards, and focus on reducing your credit utilization. As you pay down your debts, your credit utilization will decrease, which can help boost your credit score over time.
4. Consider Secured Credit Cards:
If you’re having trouble getting approved for traditional credit cards, consider applying for a secured credit card. A secured credit card is an excellent option for people with poor credit because it requires a cash deposit upfront, which then becomes your credit limit. Because you’re essentially borrowing from yourself, secured credit cards are less risky for creditors and can be easier to get approved for. Just be sure to make your payments on time, or you risk further damaging your credit.
5. Be Patient:
Rebuilding your credit is a process that takes time. You won’t see an immediate improvement in your credit score overnight, but if you follow the steps outlined in this guide, you’ll start to see progress over time. The most important thing is to stick with it and not give up. Building good credit habits takes time, but it’s worth the effort when you start to see positive results.
You’ve Got Some Work To Do, But You Can Improve Your Credit Score
A low credit score may feel like a significant obstacle to overcome, but it’s not impossible. By understanding your current situation, making on-time payments, reducing your debt, considering secured credit cards, and being patient, you can start to rebuild your credit score. The key is to stay committed to the process and make credit-building a priority in your financial journey. Remember, a good credit score can open up doors to better interest rates, lower insurance premiums, and more significant financial opportunities.
James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.