For people who have had financial missteps in the past, a bad credit score can limit your options. But because the credit evaluation process is so poorly understood, many people don’t know where to start when they want to improve their credit score.
When negotiating the terms of any financial agreement, the better your credit score, the easier the process will be. So if you’ve been asking yourself: “How do I rebuild my credit score,” read on! In this article you’ll learn how a high credit score will improve your chances of approval and increase your chances of getting more favorable terms on a loan.
How Credit Scores are Calculated
Credit scores are three-digit numbers that reflect your ability to manage credit, used by lenders to evaluate their risk if they lend you money. Although credit bureaus don’t share all the variables they use to calculate scores, there are some well established criteria, based on your credit history, that have a big influence, including:
- The length of your credit history
- Whether or not you carry a balance on your credit cards, or if you miss payments
- Your outstanding debts, particularly in relation to your credit limit or if they have been sent to a collection agency
- Passed insolvency or bankruptcy
Rebuilding Your Credit Score
There are some easy tricks you can use to help rebuild your credit score, without self-imposed austerity measures. Doing little things to improve your score does not go unnoticed by rating bureaus, and they could lead to a favorable credit report faster than you might think.
There are a myriad of ways to improve your credit score, which often begins with using a debt consolidation loan to clear up outstanding debts, but taking any of the following steps will go a long way to get your credit score where you want it to be.
Pay Bills on Time
Your payment history has a major impact on your credit score. Late payments and unpaid debts can stay on your record for years.
Before you can improve your credit, you need to catch up if you are behind on payments. If you can’t afford to clear out your outstanding balances, contact your creditors to work out a payment plan. Explain your situation so they know that you want to work with them and you can develop a plan that all parties will be happy with.
Pre-Authorized Payments Are Your Friend
Some of your monthly bills may give you the option to “pre-authorize” your payments. If you agree to them, these bill payments will be automatically deducted from your bank account, as opposed to having those bills logged on your credit card, but leaving them unpaid. The advantage to using pre-authorized payments is that you’ll never incur a late payment – just make sure that your account isn’t so low that you are forced to pay an overdraft fee.
Ask For a Higher Credit Card Limit
If your credit card balance remains unchanged but your available credit goes up, it lowers your credit utilization. Contact your credit card company to see if you can get an increased limit without a “hard” credit check, which can hurt your score in the short term.
If you are starting from scratch and need to build up credit, start by opening up a secured credit card. Secured credit cards require a deposit, which serves as the card’s credit limit and will let you get the ball rolling.
Make Frequent Payments
You can keep your credit utilization low by making small, frequent payments on your credit card bills throughout the month instead of waiting until a payment comes due, which should improve your credit score right away.
Verify Your Credit Report
Periodically reviewing your report will help you find areas where you can improve. Also, if there is a mistake on your report, it could be unjustly dragging down your score.
Consumers are entitled to a free report every 12 months from the leading credit bureaus, Equifax and TransUnion. Request a credit report from time to time to make sure there are no mistakes on your record. If you find an error, dispute it immediately.
Use a Debt Consolidation Loan to get on Track
Debt consolidation loans are used to refinance your debts, so they can be more easily managed. With a debt consolidation loan, you can use the lump sum to take care of numerous debts at once and pay down the loan every month, which will simplify your life because all yours debt is one place.
Explore Other Credit Vehicles
Depending on what type of credit you normally rely on, consider switching it up. If you tend to use revolving credit, like a credit card or line of credit where you have payment flexibility, look into installment options where you make equal payments at a set time. By using both kinds of instruments, you can appear more worthy of further credit to many lenders.
Be Patient and Stick to Your Plan
Dramatic changes to your credit score will not happen overnight. Rebuilding credit can be a slow process, but if you develop a plan and stick to it, the results will take care of themselves. The pattern of behavior you display towards your debts does not go unnoticed by lenders, so if you show that you are managing your responsibilities and meeting your obligations, your credit score will improve accordingly.
Consult an Expert
To analyze your situation in detail and get the best advice, contact one of our specialists. Your path to a great credit score starts here!