How to Rebuild Credit: 5 Methods for Fixing Bad Credit

Bad credit doesn't have to be a permanent problem. Take a look at these effective credit repair options and learn how to rebuild credit.

Are you having trouble getting loans or insurances? Is bad credit affecting your lifestyle? Do you want to learn how to rebuild credit? 

In an era where credit plays a role in defining the society, Americans are finding themselves in debt. Surveys show 55% of American adults who have credit cards also have debt. The survey found that 1 in 10 people say they had a balance of over $5000.

However, not all credit card holders are as negligent as some Hollywood movies might make them out to be. Yet, a bad credit score doesn’t always mean that the account holder is careless or a spendthrift. Some instances can also affect one’s credit scores.

People could have made bad investments or paid for unexpected emergencies. The important thing is they’re trying to fix it. 

Read on for a quick guide on how you can fix your credit.

1. Pay Late or Overdue Accounts

There is no better way to fix low credit scores than paying what you owe. You want to pay everything on time. If you can’t, then you’d want to pay your overdue bills as soon as you can. 

The longer accounts stay overdue in your record, the worse it is for your credit. Note that any late payments can stay on your credit report for up to 7 years. Also, remember that payment isn’t considered late until after 30 days past it’s due.

You should know that your payment history has a huge impact on your credit score. In actuality, it has the largest impact on your score among other factors, making up 35% of it. This is why any overdue accounts you might have will hurt your score so much.

There’s more to it than a bad record on your credit score, however. Payments for monthly past due accounts will grow with any current accounts. The further behind you are, the higher you’ll be paying for the catch-up payment.

2. Error-Check Your Credit Report and Dispute Any Errors

If you have low credit scores, one possible reason is having errors on your credit report. It’s not a commonplace occurrence but it still happens. Fix your credit by opening your credit report and checking for errors.

When you open your report, look for incorrect personal information or missing accounts. You can also dispute errors on accounts that aren’t yours or duplicate accounts. Sometimes, there may be incorrect public records on your credit report.

It’s possible to dispute inaccurate accounts and accounts that are “closed by grantor”. Fraudulent activity, incorrect inquiries, data management errors, and delinquencies are disputable also. Keep an eye out for these errors because they can be significant enough to earn you rejected loans.

When you spot errors, report your error to the credit bureau which provided your report. For small information errors, you can always request a correction. It will also be smart to inform your lender or creditor of the dispute/error.

3. Put High-Account Balances Under Your Limit

There is such a thing as your credit utilization ratio. This is the ratio that compares how much your total debt is to your total credit. It takes up 30% of your credit score.

As you can see, it’s the second-biggest factor that affects your credit. If you want to know how to rebuild credit, one method of doing it is by doing this. In essence, you want to pay off your accounts with the highest balances as soon as you can.

A good rule of thumb is this logic: The higher your balances are, the more your credit score suffers.

So, for example, you should pay off an account with the highest interest rate first. Another way to do it is to pay off accounts suffering from the highest interest rates. An account with a 15% APR will give you a much higher balance compared to an account with only 8% APR.

4. Avoid Opening New Credit Accounts

Opening new credit may seem like a great idea if you’re swimming in low credit scores. However, this is like running away from your old problems and creating new ones. You may not know it but opening new credit will only make your score suffer.

Every time you apply for new credit, a “hard inquiry” will get listed on your credit report. Hard inquiries have a negative impact on your credit score. This means that you should be avoiding them, especially when you have below-average credit scores.

If you want to fix your credit, then get your credit scores in order and settle overdue accounts. If you need money, try applying for emergency loans or other loan types that don’t check for credit scores. Some of these kinds of loans can even help your score get better.

5. Start Paying Your Bills on Time Going Forward

As you’re getting your credit fixed, it would be smart if you began paying your balances on time. While credit card debt can be difficult to pay, you must do it on-time as much as possible. This is because you can get a better standing when you follow your payment schedules. 

Catch up to your payments and then start making on-time payments. Paying your monthly bills on time will result in much better credit scores than when you allow them to become late or past due accounts. If there’s one thing credit companies and lenders value, it is punctuality.

When you make on-time payments, you are showing them that you can manage your money well. They like people who can manage their personal finances. This is because it often means they aren’t taking a risk with those people. 

Learn How to Rebuild Credit Today!

That is it for our guide on how to rebuild credit. Building credit is easy on your own. All you need is a good amount of self-control to do it. Also, you’ll be better off with money to pay bills and balances on time. 

Once your credit score goes up to ideal levels, maintain it. Keep a good watch on your credit report for any errors. If you can, set up auto-payments to ensure you pay your balances on time.

It doesn’t stop here! If you found this article helpful and informative, feel free to read our other guides today.