Rebuild Your Credit Step-by-Step
Don’t let low credit scores get you down. Start rebuilding your credit today.
If you damaged your credit in the past and lenders and creditors are hesitant to offer you new lines of credit, don’t lose hope. Instead, use these helpful tips and rebuild your credit, boost your credit scores and watch your creditors soften their tough stance.
Learning from past mistakes
There’s a reason why you wound up in financial distress. You may have lost your job and had to use your credit cards to pay bills, or perhaps experienced a medical emergency, or simply spent more money than you were able to afford. You don’t want to dwell on things, but now that the distress is over, it’s time to learn from your mistakes. Let’s go over the most common problems that impact troubled consumers:
- Credit card mania: Some people just can’t control their credit card spending. Once they max out one card they sign up for another and do the same. Soon they are barely making the minimum payments or worse, missing payments. That’s obviously the wrong way to go about your business.
- No emergency fund: Not having an emergency fund for unexpected costs usually means those costs go on a credit card. The rule of thumb is to have six months of your household expenses saved. If that’s impossible, save less but save something.
- High interest rates: Once you start falling behind or missing payments, your interest rates skyrocket. That means you’re paying less on the balance and the debt is extended.
- Living without a budget: If you don’t know what you’re spending your money on, how do you expect to get a grip on your finances? The answer is you can’t. Budgeting solves the problem by tracking all of your expenses.
- Poor money management: This basically combines everything we’ve already discussed. If you can’t manage your finances – pay your bills on time, budget, save for retirement, build an emergency fund, control spending – you’ll find yourself back in debt or worse, bankrupt.
Tips for rebuilding your credit
Rebuilding your credit is not easy, but it’s also not impossible and you may feel a bit lonely as you go through the process; meaning your creditors and other lenders probably won’t be there to lend a helping hand. That’s because they’ve lost trust in you because of your past financial “sins,” but that’s okay. Once you make the effort and boost your credit score, they’ll be with offers of friendship again in the form of new credit applications.
Use these tips to get back on track:
- Get your credit report: You won’t know how to rebuild your credit if you don’t know what negative information is on your report. Visit annualcreditreport.com. All three bureaus, Equifax, Experian and TransUnion, offer their reports at that site or you can call 877-322-8228 to order your credit report. If you have questions don’t hesitate to contact them.
- Make payments on time: Lenders won’t look kindly upon you if you miss payments or are late with payments. Also, if you can, make more than the minimum payments each month, doing so will lower your debt quicker and help improve your credit history and credit score. A good payment history now can offset any irresponsibility of the past.
- Keep debt to a minimum: This is all about credit utilization ratio. It sounds technical but it’s the amount of debt you have compared to your total available credit. So if your available credit on a card is $1,000 and you have $800 in debt, you have a poor ratio (80%). The lower the debt the better the score, and your ratio determines about 30% of your credit score. Pay down your debt. Ideally, you want to be using about 20-30 percent of your available credit line.
- Check your debt to income ratio: This is the amount of debt you owe compared to the money you bring in. If you incur too much debt your earnings won’t be able to pay it off on time or in an efficient manner, which damages your credit score.
- Get a secured credit card: Even if you can get a regular credit card, the high interest rates and severe terms will make it unfeasible. A secured card offers better terms and rates. This card requires a deposit, which will be equal to your line of credit. It’s also an efficient way to build a better credit history by making timely payments.
- Diversify debt: If possible, and if you qualify, take a small personal loan. You may be able to use it to improve your home or make an investment. Either way, making timely payments on it improves your credit history.
- Avoid scams: There is no easy solution to rebuilding credit. If someone tells you otherwise, they are lying. The Credit Repair Organization Act (CROA) makes it illegal for credit repair companies to lie about what they can do for you, and to charge you before they’ve performed their services.
Don’t let debt ruin your life
If you avoid past financial mistakes and utilize the tips provided, rebuilding your credit will become a reality. But if you’re not satisfied with how things are working out and need further advice on budgeting, money management skills or just want someone to speak to about your financial future, call Consolidated Credit. A certified credit counselor can evaluate your debts to help you better understand your personal situation. Call to speak with a credit counselor now. You can also take the first step online with a free Debt & Budget Analysis.