The Four Fastest Ways to Recover from a Credit Score Drop

From personal loans to rent, it’s no secret that our credit scores play an important role in our financial lives. Hardships we encounter like a job loss, a divorce, or unexpected bills can see our scores—and confidence—drop significantly. Just a 50-point decrease can make a huge difference in our ability to borrow money and reach our financial goals. 

While there is no magic wand that will instantly boost your credit, we can offer you the five best ways to quickly recover from a drop in credit score.

Make Frequent Payments

Picture this: you’ve decided to take control of your credit card debt. For the past six months, you have consistently paid off your monthly balance. Your score should be climbing, right?

Not necessarily. Though this is a great financial habit to have, the problem is that your creditors only report balances to the three credit bureaus once a month. If you’re running up big balances, it may appear like you’re overextending your credit.

For example, let’s say that you have a rewards credit card with a $5,000 limit. Because of those lucrative rewards points, you use it for almost everything and hit your $5,000 limit for the month. When your statement comes in the mail, you send off a check to pay it in full. Yet because of the way credit card companies report your statement balance, it appears as though you have a $5,000 limit and a $5,000 balance, a 100% credit utilization rate. Though we’ll touch on credit utilization in a bit, know that the three major credit bureaus advise you to have a credit utilization roughly around 30%.

The solution to this problem is to make small payments (also known as micropayments) at various points during the month to keep your balance as low as possible. It can help to treat your credit card like a debit card and pay off purchases as soon as they’re posted. These little payments will likely lead to big results for your credit score.

Pay Every Bill on Time (And Get Credit for It!)

Did you know your payment history accounts for 35% of your score, and late payments can stay on your reports for seven years? With such an enormous impact on your credit history and score, you’ll want to pay all of your bills on time. Not just student loans or credit card bills, but also smaller things like utilities, rent, and your phone bill.

In a perfect world, we would always pay our balances on time; however, in reality, unforeseen circumstances happen. If you miss a payment by 30 days or more, you’ll want to contact that creditor immediately to schedule a payment. It doesn’t hurt to ask if they will consider not reporting the missed payment to the credit bureaus.

Fortunately, the impact of missed payments will lessen over time as you demonstrate a pattern of positive credit behaviors. One way to see a quick shift is by using a new, free product called Experian Boost. Experian, one of the three major credit bureaus, connects to an individual’s bank account and takes note of their utility and telecom payment history. After a consumer verifies the data and confirms they want it added to their credit file, an updated (and hopefully higher!) FICO score will be posted in real-time.

Lower Your Credit Utilization

As mentioned earlier, one of the quickest ways to boost your credit is to pay down your balances. But what if you’re not in the financial position to do that? Faced with this dilemma, many people turn to a personal loan to consolidate debt. Though you aren’t reducing the amount of your overall debt, most credit scoring models don’t treat installment debt (e.g., a personal loan) the same as revolving debt (like your credit card balances).

Consolidating debt into a personal loan will benefit your credit score in two ways. First, this type of consolidation converts your revolving debt into installment debt, which reflects positively in your score. Second, paying off your debt with a personal loan lowers your credit utilization to 0%. Still not convinced? Many personal loans offer much lower interest rates compared to credit cards, allowing you to chip away at your debt faster.

Become an Authorized User 

We all have that friend or relative. You know, the one with a long record of an excellent score and zero credit card debt. While it’s tempting to look at this person and feel discouraged, there is a way that they can help you get to their level: by adding you to their account as an authorized user.

As an authorized user, your loved one’s account will show up on your credit report. The longer you stay an authorized user, the more your credit score will reflect the primary cardholder’s good financial habits. The more on-time payments they make, and the better their credit utilization is, the bigger the boost your score gets.

It’s important to understand that becoming an authorized user isn’t something to take lightly. Your financial behavior, including spending habits and payment history, will have an impact on the primary borrower’s credit rating. By overspending and not contributing to on-time payments, you put their good credit on the line and could strain your relationship with them. However, if you both maintain low credit utilization and pay off any accumulated balances on time, you’ll both benefit from positive account activity.

Let’s face it: building your credit score back up takes time, but don’t get discouraged. Follow these five tips to increase your credit score as quickly as possible and stay consistent with building good financial habits. Reaching your goal of an improved score is well worth the effort. 

Looking for more ways to boost your credit score? Consider a personal loan from Credit Direct! Not only will it add to your credit mix, but it may also help you consolidate some of the debt dragging your score down. Apply online to check offers in minutes with no effect to credit score!

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