Financial challenges happen. However, it is vital for us to seek out help when they do. When we face economic challenges, our credit records take a hit.
It may take some time to really see what happened and went wrong. But it usually becomes too late and your credit score is already majorly affected.
Now you are sitting here and looking at what steps you can take to rebuilding your credit.
And that takes time.
But there are such foolproof ways to restore confidence fast, but you will see actionable results sooner than you think.
When it comes to rebuilding our credit score and records, there are just no shortcuts or secrets. We just have to smartly go through methodical steps.
In this article, we will explain the steps you should take if you want easy ways to rebuild your credit.
The Following Steps Will Help In Rebuilding Your Credit:
1. Pay Your Bills on Time
But is this one of the biggest mistakes people still make? Yup.
There is no way around this.
If you want to rebuild your credit, at the very least your bills need to be paid on time. Just a reminder, “on time” means that the company receives the payment by the day that it is due. It might even be beneficial to mail it a few days before it is due.
You may be thinking “Well I am already struggling to pay my old bills how am I even supposed to follow this?”.
It may be at your best interest to take a personal loan (yes these are loans made for people with lower credit scores) and pay off all your debts that have multiplying interest rates. That means you can start fresh and not worry about your previous bills, but just focus on the new ones.
If you find it hard for you to remember or keep track of when your bills might be expected, set up an automatic payment with your bank. This way you will have a very hands-off approach in the entire process.
But make sure that you have enough money in your bank account each time a payment is supposed to be due.
If you find that you are being spread too thin or have too many places that your money might be due, consider canceling a few accounts to make it easier (and take less time monthly) for you to manage.
2. Try Not to Get Too Close to Your Credit Limit
Another important thing that your credit card company measures are how close you are to spending all your money, or maxing out, in colloquial terms.
If you are using almost all your credit card balance each month, your credit score will take the hit.
For this reason, it is a good practice only to use 10-50% of your credit limit a month. This sends the message that you are responsible with your money and have safer spending habits.
Although this doesn’t make a HUGE impact, it still reflects who you are as a spender. But this doesn’t mean getting way too much credit because that has many problems on its own.
3. Make Sure You Aren’t Applying For Too Much Credit
A lot of people are often tempted to open a lot of new accounts in a short time. Examples of this are opening a new card to transfer balances or even opening new store cards to get discounts.
This will negatively impact your credit score because this clutter doesn’t always send the right message for your credit score.
Try setting up a meeting or applying for a new credit card that has a credit limit that you can actually handle and spend wisely on. Slowly pay off the one with more credit and never use it again. This is a great method to build your credit because it shows that you are now being responsible with your money.
This is because you are often tempted to spend more beyond your means because you can. This will get you in a bad loophole and lower your credit score immensely. Spend on everything you can afford.
4. Try a Monthly Approach to Paying Your Balance
If you pay monthly, you will remember a lot more about payments.
For example, the whole idea is to pay on time, every time.
If you try to pay monthly, you will not only remember to pay your bills timely, and you will have less to spend every time. If you set up bill pay for any more than a month, you often don’t have the money for it when it comes, putting you in a bad loophole. This is better than letting the money accumulate. You will not be carrying a balance either. Again, try to sign up for text alerts or better yet, automatic payments to avoid missing bills.
Remember the old saying: How to eat an elephant? One bite at a time.
This is important to remember when trying to rebuild your credit.
5. Secured Cards Might Be The Way To Go
Secured cards are a safer card that the bank might try to convince people with risky credit histories to use.
These are cards which the balance allowance is a lot lower to avoid you to bite off more than you can chew. Once this proves to be successful and you can demonstrate that you are responsible with your money, the balance you are allowed to have on your credit card monthly will grow.
The downside? Fees and interest rates are often higher than on regular maps. However, these are in place to dissuade you from paying late. So, having these higher penalties work in your favor when you are trying to rebuild your credit.
6. Check Reports Often
Like mentioned before, there are based on your experience over time as it can take some time to build up the credibility again.
The most data points there are to suggest that you are responsible with your money, the better it is for you. Many companies give you credit reports every year that are good to measure where you stand. You may find that there is incorrect information affecting your statement.
Some companies like too add in some additional fees just to get more money from you because they know that you are desperate and will pay. Be wary of those scams. In that case, file a dispute to get it figured out sooner rather than later. Or, it is just a good measure to see where you stand.
One late payment can do a lot of damage, so make sure that you are keeping up to date and spending within your means. Check out this resource for more information about removing late payments.
Generally, if you have recently declared bankruptcy, that information will stay on your credit report for ten years. Foreclosure information will remain for seven years, and lawsuits or judgments will stay for seven years or more.
Expert Tips from Jeanne Kelly:
“My #1 rule to raise your score is know what is on your credit report. Many people are focused on all types of credit scores they don’t even know what scores lenders use, and then they do not check their actual reports. The key is checking on their credit reports. Only you know what accounts belong to you or not so make sure you check your reports from Experian, Trans Union & Equifax. Get out a highlighter and highlight anything that does not make sense to you. You can enter a dispute on any incorrect information. That is where you start. Then once you are working on improving your credit or you know you have good credit, you need to protect it.”
7. Three Steps That Will NOT Help, Even if You Have Been Told Otherwise:
1. Using a debit card/cash
These are methods that don’t necessarily prove that you can repay debts.
The way these work is like gift cards, and you can’t spend more than you have. For that reason, it doesn’t prove much, unfortunately. Even if it is your first time getting a credit card and you don’t have any credit, make sure you do the research.
Credit card companies think that you have gone missing and are running away from your credit card because you know you are debt. So this might hurt your credit score even more.
2. A prepaid card
Again, same thing. A prepaid card is like your own money that you preload so it is still your money.
Don’t confuse this with a secured card, which is meant for people who are getting their card for the first time.
Show credit card companies that you are working on rebuilding your credit, slowly but surely. Don’t run away from them.
3. Using a payday loan
Payday loans used to be more popular before than they are today.
Mostly, it is a loan that you can take out (usually a small amount of money) with a high rate of interest, that is paid back when someone receives their next paycheck. This doesn’t help you rebuild your credit because even one-time payments using these doesn’t show you can pay bills without external help.
You can, however, get a personal loan and refinance your credit card loans, which can give a boost in your score.
It’s a Marathon, Not a Sprint [“but you still have to win the race”]
Finances and credit are all about the long term. This means that if you show your improvement over time, you are on the right path.
For example, the longer you can keep this up and show that you are capable of paying on time, the more companies will be convinced that you are responsible and your score should be higher. Spend a few months trying to demonstrate this, and then see how everything comes together.
You just have to be patient and cautious of what you are spending your money on. This doesn’t mean you can’t buy that expensive laptop that you wanted, you can just wait a bit when it is smarter to purchase.
Rebuilding your credit isn’t as hard as you probably once thought.
A good idea would also be to contact your bank and see what they have to say about advice for rebuilding your credit. Oftentimes, they are not credit experts but they can help give you some advice. One thing they recommend is making payments on time at the very least.
Beyond that, make sure to follow the tips outlined in this article for further details.
It is possible, like most things, with enough diligence. As you have read above, it does require lots of effort, though. You need a systematic plan and need to execute on such.
Try things like on-time repayment, constant monitoring, and methods like secured cards. There are many people and organizations out there that want to help you achieve your goals, so reach out and see what help is available for you to attain financial aid, especially in regards to how to rebuild your credit.