Tips for Rebuilding Your Credit
Trying to rebuild your credit can be confusing if you are not sure what to look for or what actions to take. While some companies may offer to help you rebuild your credit for a fee, it will usually take them no less time than it would take you to accomplish this on your own. Here are the most recommended tips by experts in the credit industry for rebuilding your credit effectively.
1) Review your credit report.
Carefully examine your reports from both Equifax and TransUnion and look for any items that may be having a negative impact. This includes any accounts that are currently listed in collections, as well as any creditors showing a rating other than R1. Although a rating of R2 is far better than an R9, having multiple R2 to R5 ratings will indicate that your payments are not being made on time to your creditors. It is important to check your credit reports from both Equifax and TransUnion as some creditors may report to only one credit bureau and not the other. You can pull your own credit report at any time without negatively impacting your credit score. However, having a creditor pull your credit report will have an impact, and which is why applying for new credit should be done sparingly.2) Resolve your outstanding debts.
Once you have figured out what items are weakening your credit score, take steps toward rectifying them. If you are able to pay off the debt in full immediately, this is usually the fastest way to rebuild your credit, provided the account is not already in collections. If you are unable to pay off your debts in the next few months or if they have already been sent to collection agencies, our DebtAnswers Solution Finder can help you determine what options are available to you for handling your debts. Each option will carry its own benefits and consequences, so it is important to learn what impact each will have on your credit rating and overall credit score before proceeding. A Certified Credit Counsellor or Licensed Insolvency Trustee will be able to thoroughly discuss how each option will affect your personal credit. Keep in mind that while some debt relief options may initially have a negative impact on your credit report, it is important to consider how long it would take you to repay the debt on your own. If it will take you five years or longer to repay your debts, it may be faster to pay off the debts through a consolidation program and then work on rebuilding your credit after.3) Obtain a secured credit card.
A secured credit card is similar to a prepaid card in that it requires you to put money on it before you can use it. However, unlike a prepaid card, the available credit limit of a secured credit card will increase as you continue to use it responsibly and make your payments on time. So, let’s say you get a secured credit card and put a deposit of $500.00 on it. For the first few months your credit limit will be $500.00, and each month you will be expected to make payments on it. As time goes by, the creditor may increase your credit limit to $1000.00 due to your good payment history, even though they are still only holding a $500.00 deposit. A secured credit card is good for rebuilding your credit because it is easier to get than an unsecured credit card, but your payments on it will still be reported by the creditor to the credit bureaus.4) Use your credit responsibly.
Make all of your credit card, loan and bill payments on time. As your creditors continuously report required payments being made on time, these positive items will eventually push the old negative ones off the report. Keep your credit utilization (the percentage of available credit being used) below 50%. This means not having your balances exceed 30% to 50% of your available credit limits at any given time. Remember, rebuilding your credit takes patience and will not happen overnight. Therefore, practicing good financial habits over an extended period of time is one of the best ways to increase your overall credit score.
