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We’ve all been there, at one point or the other, struggling with that very low or “fair” credit score that
threatens to portray us as an individual that cannot be trusted financially.

While some of us were able to rebuild that FICO score, it seems almost impossible to be rebuilt by
others. If you belong to the latter category, relax! We at have compiled
some helpful and practical legal tips to help you overcome this financial challenge.

What are the things that actually crash your credit score?

Before you even attempt to chase after improving your score, a golden piece of advice from us is to
identify the source of this problem. Yes! Here are some things that have the propensity to hurt your
score more than others;

  1. Your usage percentage: Letting your usage percentage go high is very detrimental to your score!
    Usage percentage is the fraction of your total available credit used when compared to how much you actually have access to. Simply put, it is the percent of your total credit used by you.

    Keeping it below 30% will do the trick. Let’s say you have a total credit of $100000 (Credit card limit plus line of credit limit), and your current total balance is $80000. Your usage percentage is 80% which is way too high.

  2. New Credits: When you apply for multiple credit cards, especially outside 45 days range, several
    inquiries commonly called “hard” inquiries are generated into your credit history. Also, your account’s average age is reduced thus altogether setting you out as a high-risk borrower.

  3. Filing for a Consumer Proposal or Bankruptcy: This has been known to significantly crash your credit score and remain over a very long time– 10 years according to Consumer Financial Protection Bureau(CFPB).

    We understand that the debt might look unbeatable, and filing for bankruptcy might ease the pressure, but it leaves an indelible mark on your credit report.

How Is The FICO Score Formula Designed?

In addition to identifying the main culprits of your crashing credit score, it is equally important to
understand how the FICO credit score formula is calculated if you want to stay at the top of your game.
Here are five major factors that make up the FICO score;

  • Payment History: This is the most important factor in the FICO formula as it carries about 35% of your total FICO score. Bankruptcies, liens, and timely payment of previous accounts are major areas considered here.

  • Amount owed/Debts: This closely follows payment history at 30%. The type of debt, number of accounts being owed, total amount owed, and interestingly; your usage percentage or your credit utilization ratio which we’ve covered up there.

  • Length of Credit History: Your credit history length makes up 15% of your total FICO score and it includes how long your accounts have been active, and how long they’ve been opened i.e average age of all your accounts.

  • Credit Types/Mix: This makes up 10% of your total credit score. Having varying types of accounts is generally more FICO-loving than similar ones.

  • Application For New Credit: This accounts for the last 10% of your FICO credit score. Try not to open several credit accounts in a short period.

Real And Helpful Tips To Improve Credit Score

All that has been mentioned from the beginning of this article are in one way or another useful in
rebuilding your credit score but here are some more helpful ones;

  1. Try a Secured Card: If you are not eligible for a regular credit card, this method will help you to start out small, and as you prove you can pay on time, your credit limit is raised.

    Although the interest rates and fees may be on the high side, you can use them to establish a good
    credit record thereby strengthening your payment history.

  2. Always pay your bills on Time: This means making sure bills are paid on the due date. It is one of the most effective methods of improving your credit score. And if by chance you are paying by mail, always put your payment in the mail a few days before its due date.

  3. Always check your Credit report: Endeavor to go always go through your credit report and fix errors immediately! You don’t want to be a victim of identity theft. Trust me, the positive effect of monitoring changes in your credit via the credit report cannot be overemphasized.

  4. Avoid closing Old accounts: As subtle as this might sound, it is one of the secrets to improving low credit scores. Keeping accounts you no longer use after paying them off helps to increase the length of your credit history which as previously mentioned, forms the greatest part of your FICO credit score.

  5. Develop an Action plan for your Credit score: To Improve your credit score, you should be ahead of these factors and not behind. Once you have your report and your credit score, you should be able to identify where you stand and also the problems contributing to the low score.

    Then using the FICO formula design, strategize an action plan that addresses those problems and
    includes all the five factors we discussed, especially the first two.

  6. Learn to Budget: Since one of the popular reasons why people end up with poor credit is
    overspending, organizing one’s financial life by budgeting is a superb step to take. It is also important not to get too close to your credit limit as it determines your usage percentage.

Myths About Improving Credit Scores

Contrary to popular opinion, the four things listed below don’t actually help in rebuilding your credit;

  • Prepaid Cards: Using a prepaid card involves loading your own money in advance onto the card.

  • Debits Cards/Paying Cash: When it comes to proving you are credit-worthy, a history of transacting in cash or with debit cards does not help.

  • Obtaining a payday loan

  • Obtaining an auto loan from a “buy here, pay here” car lot. This can only be useful if they agree to write a report of your on-time payment.