We tend to recommend using credit cards to help you rebuild credit but there are actually dozens of ways you can do it. Today’s post is going to outline a few more steps to rebuild credit score.
We asked our auto loans team to outline a few straightforward steps to rebuild credit score. Here are some of the better suggestions!
What Goes Into Credit Score Calculations?
Not every credit reporting agency uses the exact same calculation, but there are some basics you should be aware of.
Payment history: Paying your bills in full and on time is vital to achieving good credit. While it’s best to pay off any credit card debt every month, it’s not always possible. Make sure that you can make more than the minimum payment though, otherwise you won’t be able to get ahead.
Amount owing: This includes all aspects of your credit mix, from credit cards to student loans to a mortgage or a line of credit. It’s a good thing to have a mix of credit facilities, but if you’re unable to manage all of them, your credit score will be negatively impacted. Ideally you could pay off any balances each month, so if the amount owing is higher than that, you need to work on bringing it down.
Credit utilization rate: how much of your credit limit you’re actually using. It’s good practice to keep this number at or below 30% if you can. This shows lenders you’re only using credit you need and is a sign you’re a responsible borrower.
Credit age: How long have you been able to maintain your accounts? You might be excited to pay off that high interest credit card, cut it up, cancel it and wash your hands of the whole thing. But a better idea would be to pay it off and keep the account open. Maybe lower the limit if that makes you more comfortable but managing credit accounts for long periods of time is another factor that shows lenders you can handle debts.
Credit mix: From student loans to mortgages to credit cards, they’re all part of the mix
How Long Will it Take to Increase Credit Score?
There’s no solid timeline we can provide for when you’ll see your hard work pay off. It depends on the situation you find yourself in. A few missed payments or maxed out credit cards are easier to manage than foreclosure or bankruptcy. Just hang in there and don’t give up!
11 Ways You Can Increase Your Credit Score
Check your credit score: First thing’s first. Check your credit score to see where you stand. You can check with Experian, Equifax or Transunion to find out your score. If you only reviewed a report from one consumer reporting agency, you may want to check out what others have on file. Having a full perspective of your debts will help you figure out a plan to manage it
Check your credit report for errors: A quick win is to correct any mistakes or errors on your credit report. It could be as simple as a zero in the wrong place, a typo in your address or something completely different.
Never miss a payment: If you can handle your borrowing without a loan, pay off the most expensive debt first to lower the overall cost. That is usually credit cards but if you have a bad credit car loan or other borrowing, check the rates. Prioritize the most expensive debt and work your way down the list.
Settle bad debts: Make sure to settle any bad debts as quickly as you can. While these other tips can help you rebuild credit, having bad debts hanging around will only drag you down again.
Avoid applying for new credit accounts: When you submit these applications, it results in a hard inquiry, which negatively impacts your score. So, hold off just until your numbers are up.
Use a credit builder card: Credit builder credit cards are designed to help you rebuild your credit score. They can be more expensive to service if you don’t pay it off at the end of the month so be careful.
Consider using a credit builder card for regular payments like gas or groceries and make sure to pay it off each month. It will definitely help rebuild your score!
Go through your credit report line by line to make sure it is completely accurate. If you spot a mistake, follow up with the organization who made the entry and request it be corrected.
Have rent payments reported: Some landlords will mark rent payments on your credit report and some won’t. If you’re a renter, we recommend asking your landlord to record your payments with one of the credit bureaus so you can begin seeing a little benefit from always paying on time.
If your landlord doesn’t mark payments, contact the Landlord Credit Bureau as they may be able to assist.
Have phone contract payments reported: If you have a contract phone that’s nearly up, make sure your next one reports your payments to the credit bureaus. Not all providers do and it does mean taking a contract rather than using a cheaper provider but if you’re rebuilding credit, it could be worth the extra expense.
Do your research on what mobile providers report payments and find a good value contract with one of those. The more positive entries you have on your credit report, the faster your score will increase.
Create a household budget: A sure way to stay on top of everything is to know where all your money goes. The easiest way to do that is to create a budget. This is something we recommend all our clients do to help them fully understand what’s coming in and what’s going out.
Use an app, use a spreadsheet, use pen and paper. Whatever you use, make sure to create an accurate budget and keep it updated.
That way, you’ll always know where you are financially.
Prioritize settling any missed payments or bad debts before saving or before other types of debt. Then, once you’re up to date, you can prioritize expensive debt first again to minimize interest charges.
Keep old credit card accounts open: When your credit score is where you want it to be, you can close any account you don’t use to keep life tidy. However, when you’re rebuilding, keeping card accounts open but dormant means the credit limits count against your credit utilization, in a good way.
Lock the cards away, cut them up or whatever you need. Just keep the accounts open while you’re rebuilding. Then, when you’re ready, you can close the accounts if you want to.
Use secured loans: Secured loans are useful for those with bad credit and can help build your credit score and payment history. Use the loan to pay off all your other debts and use it like a consolidation loan. Create a positive payment history by always paying on time and your credit score will gradually improve.
Combined with a credit card and landlord notifications, a secured loan could help build your credit score after just a couple of months.
Now that you’ve read until the end, hopefully you know a little more about how to rebuild credit score. If you have any more questions, please don’t hesitate to contact us here!
For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!