How To Rebuild Credit
Rebuilding your credit helps you gain more control over your overall financial health and stability. Before you start rebuilding credit, it’s important to understand where your credit history stands. Additionally, you should know how it dramatically affects your life. Knowing how to rebuild your credit and how to avoid bankruptcy can save you time and valuable resources.
Why Rebuild & Repair Your Credit?
The fastest way to rebuild bad credit is to understand how credit works in the first place and why it matters. Having good credit can help in the following ways:
- Allow you to secure better financing terms
- Access to better job prospects
- Get approved more often and easily for home rentals
- Get better terms and financing on leasing a car
Once you consider just how much your credit score may influence your life monetarily, you’ll become more focused on building back credit.
5 Great Strategies For Rebuilding Credit
There are multiple ways to better your credit score. Your best and most successful course of action will be to combine several methods. If you’re interested in rebuilding credit fast, keep the following five points in mind.
Increase Your Credit Limit
When attempting to build on bad credit, you must consider something known as credit utilization. This is the percentage of the credit limit you’re currently using. Why does it matter? The amount of credit you use has a large effect on your score.
To maintain a good credit utilization ratio, keep the following in mind:
- Don’t exceed 30% of the limit on your credit card
- Lower amounts will always be better for your score
- The issuer of your card will report the lower balances, which will bring up your score
Once you improve your score, your high credit utilization will be ancient history.
Take On A Secured Credit Card
Getting a secured credit card can be helpful in repairing your score. Factors affecting your credit score often have something to do with late payments, unpaid payments, or too much usage on your card.
A secured card works differently than a regular one:
- You must give a deposit
- This deposit will most likely become the limit for the card
- From there, use your secured credit card like you would a regular one
Don’t forget to choose a card issuer that reports to all the three major reporting bureaus. You’re doing this to repair your score, and it would be a shame for that to go unreported.
Obtain A Credit Builder Loan
Perhaps one of the easiest ways to repair credit is through a credit builder loan. This is a loan with one singular and important purpose: to improve your credit. A credit builder loan is a secured loan that’s fortified by money in your savings account.
Why are these loans usually safe? Consider the following:
- The bank or credit union, depending on where you take out the loan, will put a hold on the amount of the loan (usually from your savings) until you repay it
- This means you don’t take out a personal loan for the money you don’t have
- It’s imperative that you pay on time since payments are reported to credit agencies
Become An Authorized User
Is there someone in your life with a strong history of good monetary habits who consistently pays their bills on time? If so, you might ask that person to add you as an authorized user on their credit card. By becoming an authorized user, you can benefit from the good habits of someone you trust. Additionally, you aren’t required to use the card at any point in time.
You’ll want to be sure this is a safe situation. Ensure the following:
- That you trust the person to make complete and on-time payments
- This individual has a positive credit history
- You feel secure entering a financial relationship with this person
You aren’t asking someone to co-sign a loan with you, but you’re still entering something serious. Just as their good credit will improve your situation, their bad credit can also bring you down with them.
Always Pay in Full, On-Time
If there was a course called credit repair 101, one of the most important lessons would be to always pay in full and on-time. This is the best way to rebuild credit fast. If you can only pay the minimum required, that’s ok too, just be sure to pay on time. Payment history is possibly the most influential factor that affects your financial status. Ensure that you:
- Avoid late payments
- Pay at least the minimum
- Set up a payment schedule and reminder system, or consider automatic payment
Rebuilding your credit is more of a marathon than a race. If you want to ensure you take the best course of action, you’ll probably need to implement a combination of the methods mentioned above. Repairing credit can take time and patience, but the rewards can be huge. The hard work will be well worth it once you reach a higher level of financial health.