To many people, having bad credit is one of the most frustrating experiences in life. When your credit is bad, it limits your chances of enjoying certain benefits in life, especially when it comes to finances. For starters, it limits your chances of qualifying for a loan since creditworthiness is the first and most important factor that most banks and financial institutions consider before approving any loan application.
If you happen to qualify for one, the terms may not be the best. The interest could be unrealistically high and the loan term may not be as long as you’d want it to be. Additionally, you might just miss the opportunity to get your dream job, as employers also consider their prospective staff’s credit scores before hiring them. Seeking to rebuild your credit basically means that your current credit status is wanting, maybe due to delinquencies on past debts or defaulted payments on a mortgage, a credit card, or a personal loan.
Do not expect a miracle to happen and so if you have bad credit, you have to work towards getting yourself out of that situation. Are you at that point where you think that your credit score is very low? Rebuilding your credit might be an uphill task but it is very possible to restore the glory that you once enjoyed.
However, it is important to note that this is not going to happen overnight and especially if you have an upcoming project that needs money urgently, finding the best solution for your credit would be the best thing to do. This would mean approaching lenders who offer loans to people with bad credit without the unreasonably high interest rates, stiff penalties on late payment and mean loan terms.
After all, getting approved for a bad credit loan can actually be helpful to your credit score, especially if you make your payments on time always. Nonetheless, you should still read these 10 steps on how to rebuild and improve your credit score.
1. Obtain a credit report
A credit report helps you know exactly where to start so you can improve your credit score and rebuild your credit. It’s basically a document that provides a brief breakdown of your credit history, like the debts you’ve taken over time, the ones you’ve managed to clear, late payments, and debt that you may have defaulted. In the US, for instance, you’re allowed access to at least one credit report annually from a credit reporting bureau, free of charge.
2. Deal with credit report errors
Once you have gotten your credit report, go through it carefully. You might notice a few errors and inaccurate information, which could interfere with your credit score. Ensure that you have reported this mistake to your credit bureau or liaise with the financial institution in question if you think you’ve erroneously been reported to have missed or defaulted payment, for instance. You may already have more problems than you can handle and you certainly don’t have to pay for the mistakes that you did not commit.
3. Contact your creditors
The longer it takes for you to clear a debt, the more your credit scores are affected. If you can afford it, any missed payments to your creditors should be paid as soon as possible. But when things don’t go as you might want them to, then don’t despair. Approach your creditors and ask to formulate a payment plan with them, making sure that both of you are comfortable with it. In doing this, you will manage to clear your payment within a shorter period.
4. Clear outstanding debts
To improve your credit status, it is vital that you begin as soon as you can to pay off your debts. Debt clearing also requires a plan because you might not be able to clear all of them at once. In case you’re so cornered financially, getting a side hustle for some extra income in your free time can be a great idea. The credit utilization ratio determines how much debt you have against the credit card limit and what your balance is. Reducing your debt increases your credit utilization, which should remain at 30% or less as recommended by experts.
5. Pay your bills on time
It’s always important to clear your bills before the deadline and especially if you’re trying to rebuild your credit, it’s best not to miss a payment. You do not want a situation where records will show that you are that person that always pays bills late. Your payment history is very important, especially now that you are rebuilding your credit score. It is these small and simple things such as missed and late payments that we take for granted that end up costing us a lot more than we thought.
6. Do not close credit cards
No matter how bad your situation is, resist the urge to close credit cards that you’ve had for a long time. Doing so will likely interfere with your credit score. Your credit score history matters a lot for the longer your credit history the better your credit score.
7. Open a secured credit card
When you have a credit card and a secured one for that matter, you will be able to build on your payment history. It is a requirement that with a secured credit card, you should link it with a savings account in your bank to serve as collateral. The amount you deposit in your bank account should equal that of the credit limit.
8. Get an installment loan
Now that you are working on improving your payment habits, it’s advisable to consider taking up a small loan, one that will take you a short period to clear, provided the interest rate is not so high. Once approved for the loan, it gives you a chance to show that indeed you are capable of paying back the borrowed money in good time. If you’re afraid you won’t be able to keep up with the dates, setting automatic payments from your account or placing a standing order can be a great idea. Credit bureaus will obviously receive a report on your payments, which will eventually help improve your credit score over time.
9. Request for help
Friends and family can also play a huge role in helping you rebuild your credit score. Together you could open a joint bank account. They could also act as a cosign and help you acquire a loan that you may have been denied on grounds of poor credit rating.
10. Cultivate good financial habits
Hey, it’s possible to live within your means. All you have to do is use a free budget template based on the amount of money you earn and follow it religiously. Anything out of the budget means that you will have to go the extra mile and this is where downfall usually begins. Also, as you create your budget, do not forget to save for a rainy day.
You could also consider setting some cash aside to invest, perhaps in stocks, real estate, and such. It’s best to keep cultivating good financial habits and consider only borrowing when it’s absolutely necessary. In case of no credit history, consider applying for a credit card from neobanks like Zolve that do not follow conventional lending methods and offer credit card for students with no credit history, timely payments to this can help you build your credit score fast.
You may not achieve instant improvements on your credit score through the above steps, but you’ll surely notice a positive change. Depending on the situation of your credit card, it might require a few months or years for you to fully rebuild your credit score. For this reason, the best time to start the journey is now… or is it?