What To Do When Your Bank Tells You That You Have A Low Credit Score
A high credit score can be a ticket to low-cost interest and new loans. But if it is low, it can affect your entire family.
These situations can be tricky to deal with. Obviously, you want to increase your credit score, but you don’t always know which step to take next.
That’s where this guide can help. It looks at what you should do when your bank tells you that you have a low credit score. Sometimes, you need to take concrete actions; other times, you need to wait, and in rarer cases, you may want to challenge the score and point out where it is wrong.
What’s A Credit Score?
But first, what is a credit score?
Essentially, a credit score is a metric that lenders use to determine whether to lend to you and at what interest rate. The higher it is, the better it is for you since it means you can borrow more and pay less.
Credit score ratings come from numerous sources, but generally it relates to your credit information, how long you’ve lived at your address, and whether you pay your bills.
A credit score above 600 is okay, and one above 700 is excellent. Most lenders will look for scores in this range and then use them to determine whether you can borrow and how much.
You’ll want to be careful when it comes to your credit score since any change can affect how much you pay. Sometimes, a good credit score can open doors, even in the job market, while a low one can slam those same doors shut.
Unfortunately, this makes credit scores a big deal for families; if your score is low, it could affect your ability to function in the economy and get what you need for your family. That’s the down-to-earth truth of the situation.
What To Do When Your Bank Tells You Your Credit Score Is Low
So, what should you do if your bank tells you you have a low credit score?
Step 1: Check The Credit Report
The first step is to check your credit score. You’re allowed one free report every year from the big names, like Equifax, TrustUnion, and Experian. These organizations essentially collect all your credit information in one place, link it to your file, and then add up a score from it.
Unfortunately, it can be a crude method. While these organizations try to use advanced techniques to make your rating as accurate as possible, they can make mistakes or misunderstand your financial position.
For example, they can make mistakes like entering the wrong personal information into your report, like an incorrect address or a place where you never lived. They can also link you to accounts you don’t recognize (if someone set one up in your name and then misused it) or accuse you of paying late, even if you paid on time.
When this happens, it can be a shock. Not only are these companies collecting vast amounts of data on you, but they also get it wrong much of the time.
That’s where consumer protection attorneys come into the picture. If you find a mistake, you can use these professionals to gather more evidence of the error and potentially dispute it, or file a lawsuit if necessary. Usually, filing means that the mistakes caused you harm as a consumer or person just trying to live your life, such as preventing you from taking out a mortgage or getting the job you applied for.
Step 2: Understand What’s Hurting You
When you get your low credit score, you also want to figure out what’s hurting you. Things that seem small in your personal life can wind up having a substantial effect on your overall financial position.
For example, late payments can be a significant score-killer. If you don’t pay things like phone bills on time (even if they are just $15), it will ultimately wind up on your credit report and go into a database, suggesting that you’re not trustworthy.
High credit card balances can also be an issue. Even if you’re just doing it to get the points or cash back, that can really hurt your credit score in the long term and leave you even worse off than you were before.
Simply inquiring about your credit score can also be a hindrance. Asking creditors how you’re performing is something that they interpret as “being desperate,” and they can punish you for it, at least for a couple of months until things calm down.
Finally, a short credit history can also be an issue. No–there’s not a great deal you can do about this, but then again, it is unlikely to crater over a short period anyway.
Pulling your report is usually the first thing you should do if you find yourself in financial trouble. Getting credit scoring companies to tell you where you’re going wrong is critical if you want to discover what you want to do. These documents can provide critical information if you want to make a case against them.
Step 3: Fix The Issue
The next step is to fix the problem you find yourself in. How you go about this depends on what the report says and whether it is in error.
1. Pay your bills on time
The first thing to do is to ensure you’re paying all your bills on time. Skipping payments for a couple of months can lead to severe consequences, like repossession, which nobody wants.
If you have late payments, it can, unfortunately, hurt your credit score for years, which is something that catches a lot of families off guard. They think they’ll leave their electricity bill payment for the following month, but this sort of thing gets a lot of people in trouble.
2 Stop applying for new credit.
Next, you want to find a way to stop applying for new credit. The more applications you make, the lower your credit score will go.
This occurs because of the higher risk that it poses to lenders. If you have access to more credit, you’re far more likely to spend more of it, which increases the risk to each individual lender.
Lenders talk to each other about this information, so if you go to one, that’s likely to affect how the others see you.
Therefore, hold off on applying for new credit unless you really need it. Don’t ask for any new cards, as this can lead to a situation that actually worsens your position over time.
3. Reduce debt usage
Another tactic is to reduce your debt usage, even if you can afford to pay it off on time. Lenders like people to remain under 30% of their debt limit. If they go over this, it is often a bad sign and can indicate that there’s something wrong with their ability to pay for their lifestyle.
You can sometimes go up to 60% but it is wise to pay off the debt as fast as you can. Shorter repayments suggest you are solvent and can pay, even if it is expensive.
4. Be patient
You also want to be patient when trying to improve your credit score. It can take time to raise it. Usually, you’ll need to wait 6 months to a year to see a significant improvement. But the longer you do that, the better things get.
5. Keep your old accounts open
Furthermore, don’t close any of your old accounts. When you do this, it can shorten your credit score and hurt your history, making your situation worse.
The best approach is to close new accounts (if you have any) and then leave the old ones open. Usually, you only need three or four lenders to build up a profile of you and what you’re like when it comes to paying your bills.
6. Get professional help
Finally, it can be useful to get professional help when trying to boost your credit score. Surrounding yourself with people who understand how it works and what you need to do next is essential.
For example, you could work with attorneys to check that your credit score is accurate. They can tell you if there are errors and, if so, what you should do about them.
You should also consider using non-profits, like the National Foundation for Credit Counseling, if you find yourself in a bind. These can provide advice on what you should do next.
Credit repair companies are an option, but you should be careful. These can sometimes charge high fees and won’t always have the tools you require to make a difference to your score. Ultimately, it comes down to your initiative and what you’re prepared to do.
The Bottom Line
So there you have it. It’s worth noting that your credit score isn’t the be-all-and-end-all of your financial situation. While keeping it elevated can be helpful, it’s also worth pointing out that other things really matter, like investing in property, keeping your income high, and building your savings. The more you can focus your life around these fundamentals, the more financially secure you’re likely to become over the long term.