How to rebuild your credit

Far too many Americans have a strange ambivalence about their credit scores.

According to a 2019 survey of VantageScore, American adults’ knowledge of their credit score problems declined by about 15-20% between 2012 and 2019.

This has resulted in a scenario where millions of Americans “have fair or bad credit scores,” according to the report.

This is a problem because the less you know about your credit score, the more likely it is that it will drop and the more likely it will take a lot of time and energy to rebuild that credit score.

Otherwise, Americans with low credit scores will face potentially serious personal financial issues, including:

  • Low or no access to credit.
  • Increase the cost of credit that a consumer can obtain, by resorting to subprime loans and ultra-high interest rate credit cards.
  • Higher financial costs to households in the form of higher deposits demanded by utility companies and internet and telephone companies that would otherwise not extend credit.

If this sounds familiar to you and you want to get rid of a bad credit situation once and for all, it’s time to rebuild your credit rating.

7 steps to rebuild your credit score

Patience is the mindset you’ll need to embark on a credit rebuilding campaign – you might as well know that right off the bat.

Beyond that, you’ll also need equal doses of discipline, creativity, and financial savvy. These are the attributes of anyone with a high credit score, and they will also come in handy in your credit rebuilding campaign.

Here’s how to deploy them and rebuild your credit score in the process:

1. Prepare the ground

Start increasing your credit score by getting a free copy of your report once a year at Annualcreditreport.com.

You can also get a free copy of your credit report from each of the three major credit rating agencies – Experian (EXPGIE) , Equifax (EFX) – Get the report from Equifax Inc., and TransUnion (UTR) – Get the TransUnion report:

Experiential – https://www.experian.com/consumer-products/free-credit-report.html.

Equifax – https://www.equifax.com/personal/education/credit/report/how-to-get-your-free-credit-report/.

TransUnion – https://www.transunion.com/annual-credit-report.

2. Take a close look at your credit report

The first task is to check your current credit score and use it as a benchmark for the future. Knowing where you stand financially will give you a baseline of where you are and where you want to go.

Review your credit report for any delinquent credit account and focus on paying off those unpaid debts first. If there are multiple open credit card accounts, pay off the highest interest rate accounts first. The most expensive credit accounts cost you – the sooner they go, the better.

Also, check for any errors or discrepancies on your credit report. This means things like old accounts, wrong fees, and even fraudulent accounts. It’s okay to test a credit repair service to help you – just do your due diligence and make sure the business is legitimate. Online reviews should help on this front.

3. Focus on the payment history

Since payment history is 35% of your overall credit score, aim to catch up on any credit accounts – things like credit cards, car loans, and personal loans – that are overdue.

If that’s a problem, pick up a phone or contact an online customer service representative and work out a payment plan that will get you across the finish line without ruining your household budget.

Hiding from creditors is always a bad idea. They are more than willing to work with you and accept less money for a while in the form of a payment plan. Keeping in touch with them and paying as you go can save you from credit problems while saving you a lot of time. Oh, and you’re still paying off your debt while you wait.

4. Pay next

As you set the stage for paying off your old debts, balance this strategy by paying your current debts on time. Set up automatic withdrawals from your bank that are triggered before the payment deadline. Making regular and on-time payments to creditors is one of the best ways to improve your credit.

Over time, as you pay off your credit-related debt, you will make it a habit. Over time, the credit rating agencies will also notice these regular payments on time and reward you with a higher credit score. Once you see your on-time payment strategy validated with better FICO scoreYou’ll be even more vigilant about making payments on time as your credit score rebuilding efforts are paying off.

5. Cut spending and use the money to pay off debt

With just about all financial consumers on a fixed budget, there is no way around the need to cut spending and use the extra money to pay off debt and rebuild their credit.

If that means catching a gig next door, like driving for Uber (UBER) – Get the Uber Technologies, Inc. report or walk the dogs professionally for a while, just do it. When you work, you don’t spend money, you accumulate it and save it. Direct any extra money towards your debts and you’ll pay them off faster. The faster you do this, the faster you will pay off your debt and you can decide whether or not you want to continue with the side concert.

Otherwise, your choices are limited to cutting household expenses, like cutting out dinners and no longer shopping on Amazon. (AMZN) – Get the Amazon.com, Inc. report for a moment. However, the smartest credit rebuilder will do both and be most successful at restoring credit by getting an extra paycheck and reducing spending as well.

6. Reduce your credit card use

The whole time that you are fixing your credit score, you shouldn’t be flashing your credit card either.

This is for two main reasons. First, by not using your credit card, you are reducing your usage rate, or what card industry insiders call your “usage rate”. Keeping credit spending low is also an important part of any credit score calculation – it’s about 35% of the entire calculation.

Let’s say you have $ 10,000 available credit on a credit card. If your credit balance is $ 8,000 or $ 9,000, your credit utilization rate is approaching 100%, and that’s a big no-no in the credit score restoration game. Better to reduce your balance, say $ 2,000, which reduces your credit utilization rate to 20% much more credit friendly. This will help your credit score rebound and grow tremendously.

Second, by cutting back on your credit card spending, you save money – and that’s money you could use to pay off debt and further bolster your credit repair campaign. This punch is a huge win-win for any credit restoration program.

7. Get a secure credit card

If your credit score is in the shallow end of the FICO pool (think a credit score of 620 or less) and you can’t get a decent credit card, go with a secured credit card.

These cards offer a step-by-step way to rebuild their credit and can make a big difference to consumers who cannot qualify for a credit card. With a secured credit card, you will be asked to put a specific amount of money into an account – say $ 300 – and in return, the secure card provider will give you a credit card with the same limit ($ 300). .

As you spend and payments are automatically withdrawn from your secure cash account, your on-time payments will be applied to your credit report and help you rebuild your credit. After six months of regular, on-time payments, it’s fairly easy to switch to a regular credit card, which (with careful use and on-time payments) will boost your credit score as well.

What to remember about rebuilding your credit

Rebuilding your credit is not easy. It takes discipline, sacrifice and patience.

Yet, once your credit restoration program gets started and gathers momentum, you will see better results in the form of reduced debt and a higher credit score. Once those positive vibes take hold, you will find it easier and more rewarding, and you will work harder to rebuild your credit.

When this happens, the finish line will widen on the horizon and within your reach. Going through it is one of the best days in the life of any financial consumer.

About Scott Conley

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