Your credit report is probably one of the most examined aspects of your life. Lenders, credit card companies, auto dealers, even employers and landlords pull your credit report to assess your financial responsibility. You may have done everything to be financially healthy. But the unexpected happens and your credit score has suffered. The COVID pandemic is one example. How do you rebuild your credit?
Fortunately, there are simple strategies to help you. The basics are determination, focus and persistence. Bad credit does not need to be a life sentence.
1. Check Your Credit Report
Before getting started, pull your credit report. You should make this a regular habit. You are entitled to one free report per year from each of the credit reporting agencies. If you do not check your credit report, you will be unaware of errors or fraud that could be impacting your credit score. Additionally, your credit report will provide you with the best overall picture of your outstanding debt.
Go over the accounts listed.
- Have any of them been closed but are showing as open? Or paid off but showing as in default?
- Do you see a history of late payments, but you paid those bills on time?
- Are all the credit accounts listed yours?
If you find errors, report them right away and be vigilant with the reporting agency or creditors involved. You want the errors fixed right away.
2. Improve Your Credit Utilization Rate
Credit utilization makes up 30% of your credit score. The next step to rebuild your credit is to do everything possible to maintain a low utilization rate. You should aim for utilizing no more than 30% of the total limit on each of your credit cards. For example, the credit limit on your card is $10,000. Your revolving balance should be no more than $3000.
The lower the utilization rate the better your credit score.
3. Pay Your Bills on Time
Your bill payment history counts even more than your credit utilization rate. There may be times when your cashflow is stretched and you have no choice but to pay late. But if you want to rebuild your credit, you need a strategy to help you pay your bills on time. This includes all debt, credit cards, loans, even your utility companies.
The best way to make sure your bills are paid on time is to automate. Switch as many of your debt accounts as possible to automatic payment. If you prefer a more hands-on approach to bill paying, then set up alerts for yourself. Or ask someone to help you.
4. Secured Credit Card
Opening another credit account can help you rebuild your credit. It will improve your credit utilization rate and credit mix. However, if you have bad credit, your applications are not likely to be approved.
A secured credit card requires you to make a deposit. The amount of this deposit is your credit limit. Issuers feel comfortable because you cannot exceed the amount of the deposit you have already made. However, you still need to keep an eye on how much of your limit you are using and of course, pay every bill on time.
5. Become an Authorized User on Another Person’s Account
Unlike the secured credit card where the account is in your name, with this strategy you become an authorized user on another person’s account. They are the owner and fully responsible should you not use the credit card responsibly. Credit card balance and payment history will show up on your credit report.
This is a good way to rebuild your credit, but it requires caution and trust between the two of you.
Bottom line: It is possible to rebuild your credit. Budget, track your expenses and do all you can to keep your rebuilt credit strong.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a free financial analysis.
Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high-interest credit card debt any longer.