People don’t realize what problems they could face with a bad credit score until they have in the situation. Bad credit source not only leads to frustration but also makes it difficult to get approved for loans or credit cards.
Even if you get a loan, you have to pay a higher interest rate. Even your apartment application may be turned down or you’re required to pay a higher deposit.
Steps for rebuild your credit score
However, the good news is that you can anytime work on improving your credit score. It is not going to change overnight, but if you’re committed to the following 6 steps, you will be on a good way to rebuild your credit score:
Check your credit
Before working on fixing the credit, you must know what is impacting it so negatively. There are two ways to do so:
- Request for an annual credit report from three credit bureaus: Experian, TransUnion, and Equifax.
- Rely on a credit report website.
A credit report website will help you know your current credit score for free, as well as highlight the factors affecting your credit. The credit report won’t have a score, but it will only list a few items on your credit file. So, it’s vital to review the report properly to know what mistakes you’re making.
See what things you can fix on the credit file
If there are certain errors in credit history, you must file a dispute for their removal. The individual needs to mail a letter to a credit bureau to file a dispute. The creditors could agree to remove certain negative items from your file if you settle an account with the.
For instance, if you’ve got an account that went to collections, you may negotiate with the creditor for the “pay for delete” option. In this, your creditor will agree to make a payment settlement and remove the desired item from your credit file. This is what credit repair companies do for goodwill deletion of an individual.
Timely pay your bills every month
The payment history is another important factor in your credit score. Credit card bills are very important, as they are reported every month to the credit bureau. So, even if you’re low on the budget in certain months, make sure you pay the minimum amount on your credit cards.
In short, you must use your credit card one every month and also pay off the amount by the due date. You must rebuild a positive payment history to improve your credit card score.
Decrease your credit utilization
Your credit utilization is also among the important factors influencing your credit score. Luckily, only the most recent credit utilization matters, making it easier and quicker to improve your credit score.
For instance, you have a total of $10,000 available credit with $6,000 in balances. So, you are at 60% credit utilization. When you reduce your utilization, hence, your credit is likely to improve. Moreover, if you could pay off a huge sum of your debt, you could see a significant improvement in your credit score.
Which debts to pay first?
If you’ve multiple credit cards and debts, it is quite tricky to figure out which repayment to be done first. In this case, it’s best to make minimum payments for all the debts so that any missed payments are avoided.
Monitor your progress
While following the aforementioned steps, your credit score will gradually begin to improve. To ensure that you are moving in the right direction, do keep an eye on your credit score and also look for the changes in your credit file.
Even make use of the free online credit monitoring service for receiving alerts regarding new entries on the credit files, such as new accounts or hard inquiries. All these measures are important to stay updated on all the things happening with your credit.
Don’t close your old credit card
When your credit score improves, you are eligible for better credit cards. While you may be tempted to get a different credit card, never consider closing your old one. When you close an old credit card, your available credit score will go down. And your average credit history also goes down.
If you would like to get back your deposit on a secured credit card, you may kill two birds with one stone by upgrading your card with better features or offers.
What’s the timeline for credit repair?
Well, the timeline for your credit score repair depends on what had happened to your credit earlier and your financial history. While it is not possible to guarantee how much time it will take to rebuild your credit score because each situation is different, following are the guidelines for situations that damage your credit score:
- Missed payments- within one to two years
- Defaults – within three to seven years
- Bankruptcy – within seven to 10 years