Tips for rebuilding credit the rest of us can use. Have you stumbled on one or more financial misfortunes over the years, and now your credit rating is wallowing in the mud? Don’t worry; you’re not alone; a recent survey indicates 16% of Americans are sailing the same boat as you.
Besides, the early years of adulthood can be a war zone. As you wade your way through the murky waters of adulthood, impulse shopping, crazy college years, predatory credit offers, and poor financial decision, all these can do a lot of damage to your credit score.
Worst of all, many people in their twenties lack the experience and interest needed to establish good credit. The average FICO score for Americans aged 20 – 29 is 662, which is definitely, a “bad” credit score.
People will start searching online - tips for rebuilding credit or how to repair my credit - when they need credit. For most people, only when they’re ready to make significant investments, such as getting a dream house or starting a business, will they finally consider their credit rating. Either way, some good habits can make a world of difference in fixing the damage caused by previous financial mishaps.
But the status quo will remain if you continue to sit there on the sofa, eating snacks and watching Netflix. This is on you, so get moving! As you turn your financial life around, signup with a good credit monitoring service and integrate these six expert tips for rebuilding credit, and reap the benefits of a “good” FICO score.
1. Review & Monitor Your Credit Reports
In these cash-strapped times, you might be in a rush to improve your credit score by trying out different tips for rebuilding credit. But hold your horses, will you! You’ll get there, eventually. For now, first thing first, get your hands on your FREE credit reports from the three credit reporting bureaus.
It might be uncomfortable – seeing how bad your credit reports are – but to start rebuilding your credit, you’ll need to come face-to-face with the extent of the damage. Aside from assessing the damage, go through each report to ensure no identity theft incidents or mistakes.
It’s bad enough if you’ve had your share of slip-ups in the past, so you don’t need to pay for mistakes that you didn’t make as well. If you find any errors, dispute them.
After fixing errors, consider trying the following:
As you stay on top of your three credit reports, you get a better understanding of the rationale behind your credit rating and the tips for rebuilding credit to get you back on track.
2. Catch Up On Revolving Credit Balances And Any Payments That Are In Arrears
Do you have funds to cover the minimum payment for your credit cards? If you do, you should do so. On the other hand, if you’re short on cash, consider trying to work out a favorable payment plan with your lender. Remember, your payment history heavily impacts your credits score, so late payments are not an option at this point.
Pay all bills on time. The sooner you can clear payments in arrears and therefore lower your revolving credit balances, the sooner you can begin to notice an improvement in your score.
3. Become An Authorized User
It happens, you have too many derogatory items such as bankruptcy, foreclosure, and collection accounts on your credit report that no creditor is willing to offer you credit.
It means no new lines of credit for you. And when this happens, rebuilding your terrible credit score can be challenging. Now, this is where becoming an authorized user comes in. Convince your partner, a close friend, or relative, to add you to their credit card accounts.
If you become an authorized user, do your part! Use the card responsibly. (See: Raise Your FICO Score With These 7 Easy Tips For Using Credit Wisely) If you can’t become an authorized user, you might want to.
4. Secure New Credit & Consider Getting A Secured Credit Card
While this might sound strange, you can’t rebuild your credit if credit does not exist. It’s weird, but it takes credit to raise your credit score and get credit. For this reason, having a couple of credit cards or getting a small loan from the bank will do good things for your credit.
Can’t get approved for traditional credit cards? Try applying for a secured credit card or loan. You will have to put up collateral – usually in the form of a security deposit – but it will go a long way in fixing and improving your credit. If you’re successful in getting a secured credit card, handle it responsibly.
5. Lower Your Credit Utilization Ratio
The credit utilization ratio is another factor that heavily influences your FICO score and overall creditworthiness. Credit utilization measures the amount you owe on your credit cards relative to your available credit limit.
Keep your credit utilization ratio below thirty percent; this applies to all your loans and credit cards. The previous point did tell you to apply for new credit but don’t whip out that secured credit card to pay for everything.
What matters is to make credit reporting agencies think, “So and so is using less than a third of their credit! What a responsible spender!” And that’s the response you’re going to want. Equally as important as rebuilding your credit is treating it responsibly.
6. Apply For Different Types Of Credit But Don’t Apply For Too Much Credit At Once
When applying for credit, mix it up. Seriously. Credit bureaus value seeing you have different types of credit. However, don’t apply for too much credit at once. Because each time you apply for credit, the creditor looks up your credit report, which leaves a “hard inquiry” on your credit report.
Applying for too much credit in a short period or at the same time will make you look desperate and perhaps make lenders less inclined to approve your credit application.
One or two hard inquiries won’t impact your score, but too many “hard inquiries” can significantly damage your credits score. Be patient!
If you’re looking for tips for rebuilding credit, steer clear of the following practices:
Being declined credit and for a loan isn’t a joyous moment. Being refused time and time again is not only stressful but continues to damage your credit rating. You don’t want to find yourself in such a situation.
When you have horrible credit, accessing any loan or credit card becomes problematic. Suddenly, it hits you. If you want that dream credit card, dream job, and a new home, you need to rebuild your credit.
And suppose you fall short on rebuilding your credit and wind up having to apply for credit through a payday loan company. In that case, the odds are you’ll fall into a credit black hole and be stuck there for the better part of the next decade before the damaging mistakes fall off your credit reports.
Yes! Luckily, if you have poor credit, the tips mentioned above for rebuilding credit can help improve it – some provide quicker results than others. So take the initiative to understand the different strategies to help rebuild your credit.