Having bad credit doesn’t mean it lasts forever. You can choose to rebuild your credit score little by little until you reach a good credit score. If you become successful in rebuilding your current credit score, you can then take advantage of credit cards and loans with much better interest rates than you usually get with bad credit.
The following are some of the tips you can use to start rebuilding credit:
Make On-time Payments
It would be best to pay loan payments and other bills on time as long as you can do so. If you plan to only pay the minimum since it is what your budget permits, that’s also okay. But, if you see that it is quite impossible for you even to make a small amount of payment, it would help if you talk to your creditor and ask for any payment arrangements that might help you in the meantime.
Why does making on-time payments rebuild credit?
Your payment history is the biggest factor that influences your credit score. If you want to improve your credit score status, you can’t afford to have late payments. That is why paying early can only benefit you.
Most of the time, late payments are reflected in your credit reports for up to 7 years. This means it takes longer for this to improve or recover than other credit missteps. Furthermore, if you have bills that have already been added to collections, it would be best to prioritize the ones where your account is still open. Collectors most likely make the most noise but, they shouldn’t be your priority.
Sustain Most of Your Credit Limit Available
Credit utilization is also a huge factor in your credit score. This is the ratio of the amount of credit you are using divided by the total available credits. Moreover, most of the time, experts recommend not going over 30% of your credit limit.
You can check all the credit utilization ratios of your credit cards and lower the highest ones. When your credit card issuer records and then reports a lower balance than the usual to the credit bureaus, your credit score will have a positive impact. Besides that, once you have brought down the balance, your credit score won’t be negatively impacted by the past high credit utilization ratio.
Consider a Secured Credit Card
Getting a secured credit card makes a lot more sense for people whose goal is to build credit from scratch. For example, if you have a credit card account that has recently been closed, you might need to open a new account with a secured credit card. Moreover, these cards will most likely need to require a deposit upfront.
The deposit you are going to give to the credit card issuer is most likely your credit limit. Besides that, a secured credit card then works like any other credit card. Furthermore, it would be best to get a secured credit card from a credit card issuer that reports to all major credit reporting bureaus to ensure your credit score benefits.
Try Out a Credit-Builder Loan or Secured Loan
If you want to rebuild your credit score, getting a credit-builder loan is one of the best loan options you currently have. As the name suggests, taking out a credit-builder loan can help improve your credit score.
You can get a credit-builder loan through a bank, credit union, or online lenders. When you take out this type of loan, the lender will keep your money safe as you repay the loan. It then releases the said cash after you successfully paid the loan in full.
Suppose you have cash on deposit. You might borrow against that savings with a certificate- or share-backed loan. This type of loan is a secured loan that is backed by the cash in your money market, savings, or CD account. Just like a credit builder loan, the lender (usually a bank or credit union) keeps your funds until you pay in full. Sometimes, financial institutions give you the money incrementally as you continue to pay the balance.
Become an Authorized User
It will also help if you ask someone to select you as an authorized user on a credit card. By doing so, your credit benefits from it just by being part of the account. Plus, you are not required to access the account or make any charges to it.
Several credit cards permit primary cardholders to lay down the spending limits for authorized users. This will make the primary cardholder more comfortable in placing you as an authorized user. Moreover, you can also opt to ask someone to add you as an authorized user without even asking for the credit card number or giving you the credit card.
In becoming an authorized user, you need to know two things. One is that its impact on your credit score might be modest. This is because you are not legally obligated for the debts in the account. Second, being an authorized user might hurt your credit score if the primary cardholder does not have good credit habits.
It might be challenging to start rebuilding your credit. However, once you gain momentum, you will be on your way to a good credit score. This will eventually lead to better credit card and loan offers.