How to Rebuild Your Credit – FAST! - Slimmer Payments

How to Rebuild Your Credit – FAST!

Credit Score Monitor

Unless you have been living your adult life under a rock, you know how important having a good credit score can be. That is why it’s important to know how to rebuild your credit.

A good credit score can help you qualify for the best credit cards or good rates on personal loans. Lenders take credit scores very seriously. If you are looking to rent an apartment, landlords will look at your credit score. These days, even employers may look at your credit score to decide how responsible you are and how you handle debt reflects your potential as a reliable employee.

However, not all of us handle debt as well as we should. But you can improve your credit score. Here are ten ways to help you rebuild your credit score as prepared by the financial professionals at The Motley Fool.

1. Get Current With All of Your Payments

Before you do anything else to rebuild credit, make sure every account you have is current and not behind in any payments. Accounts more than 30 days past due can do serious damage to your credit, and the later they get, the worse the damage will get.

If you’re struggling to get current on your cards, make sure to contact your issuer. In most cases, your credit card issuer will work with you to establish a payment plan. Especially now, if you are having trouble paying your bills due to the pandemic, must credit card companies are offering some type of COVID-19 relief.

2. Pay Down High Balances

One of the key factors used in credit scoring is called your credit utilization ratio. This is the ratio of how much credit card debt you owe vs. your total available credit. For example, a credit card with a balance of $500 and a credit limit of $1,000 has a utilization ratio of: $500 / $1,000 = 0.5 = 50%.

High utilization — being close to your credit limits — is a warning sign to creditors that you may have taken on too much debt. As a result, high utilization can hurt your credit score. One way to rebuild credit is to pay down those balances. The general rule of thumb is to keep your utilization below 30%.

Building a budget that prioritizes debt repayment is often the best method for paying down high balances. If you already have a tight budget, a debt consolidation loan may be a good way to pay down credit cards and boost your credit score. Opening a debt consolidation loan can bring down your score in the short-term but can benefit your score in the long-term.

3. Always Pay Your Monthly Bill On Time

Every time you make a credit card payment and the issuer reports your payment to the credit bureaus. You are contributing to your payment history. Your payment history is the most important part of your credit score. No plan to rebuild credit will work if you aren’t paying on time. Make at least your minimum required payment by the due date every single month.

4. Consider Using Automatic Payments

If you’re having trouble remembering due dates, you can let the credit card company take care of it for you. Most banks and issuers will allow you to set up automatic payments. You can choose the amount you want to pay — make sure it’s at least your minimum payment — as well as when you want the payments to process.

5. Keep Your Balances Low

As mentioned, your utilization rate has a lot of influence on your credit score. Once you’ve paid down your outstanding balances, make sure to keep them low. You’ll struggle to rebuild credit if you keep running up your credit card balances after paying them down. People with excellent credit tend to have utilization rates below 10%.

6. Open a Secured Credit Card

The only surefire way to rebuild credit is to have a recent positive payment history. Of course, if your credit is heavily damaged, you may have trouble qualifying for a credit card with which to build that payment history. This is where a secured credit card can help. Secured credit cards are easy to get, even if your credit is damaged. That’s because secured cards rely on a cash security deposit to minimize risk to the issuer. As you pay off your balance in full, you’ll get the security deposit back when you close your account. Some issuers will even automatically upgrade you to an unsecured account.

7. Become an Authorized User on Someone Else’s Card

Another way to rebuild credit is to become an authorized user on another person’s card. When you become an authorized user on someone else’s credit card, you receive your own credit card with your name. Even though the credit account is still the responsibility of the primary account holder, the card company typically reports the credit card account to the credit bureaus for both the primary account holder and the authorized user.

Being an authorized user isn’t without risks, however. For example, if the cardholder or the authorized user runs up a high balance, both users could see credit damage. Only tie your credit score to individuals you trust.

8. Build a Budget — and Stick to It

Any plan to rebuild credit score damage is sure to fail if you don’t address the root of the problem. In many cases, the root cause boils down to the lack of a budget — and yes, that means a realistic budget, not an idealized one. If your budget doesn’t reflect your actual lifestyle and debts, it’ll be useless. A good budget can help you repay debts and keep from overextending yourself in the future. 

9. Credit Monitoring Is Essential

As you work to rebuild credit, be sure to keep a close eye on your credit reports and scores. Many credit card issuers offer free monthly credit scores, especially on credit-building products. You can also get free copies of your credit reports from each of the three bureaus once a year through AnnualCreditReport.com. If you do find any errors on your reports, be sure to dispute them quickly with the credit bureau.

10. Rebuilding Credit Takes Time

Like it or not, sometimes time is the only way to rebuild credit. Those delinquent payments and defaulted accounts aren’t going anywhere fast.

It can take years of building a positive payment history to recover from big mistakes — especially when those mistakes can sit on your reports for up to seven years. If you’re doing everything right to rebuild credit, but you still see little movement in your credit scores: wait. Time — and keeping on top of your payments — heals most credit wounds.

Have you been able to boost your credit score? How did you do it? Please reply using the comments below.

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