How to Rebuild Your Credit

If you have bad credit then it can adversely impact your life in many ways. Lending companies and banks seldom approve loan applications of people with a low credit score. It can be difficult to buy your dream house or get approved for an auto loan. You might even need to pay a higher premium for insurance policies. But there is a way out of the mess of bad credit.

Here are some simple steps to take to rebuild your credit.

Find and dispute the errors on your credit reports.

Oftentimes, your credit score can be low due to inaccurate information mentioned in your credit reports. Simply buying rebuilding credit cards is not the solution. You need to work strategically in order to rebuild your credit.

So, the first step is to analyze your credit reports. Look for inaccurate information such as delayed payments, erroneous personal information, non-payments, etc. When you work with credit rebuilding companies, they can also help you delete negative items from your credit reports such as information related to charge-offs, collections, tax liens, etc.

Once you find the errors, you need to dispute them by contacting the concerned credit bureau. You will need to do this with your credit reports from all the three credit bureaus. The process can take time. But it can help you lower your credit score for sure.

It can be tempting to dispute all the errors at once. But it is prudent to make a plan and then follow it as needed. Credit bureaus are not likely to remove information from your reports in the first instance. They may ask you to provide proof (paperwork etc.) if you haven’t already. It may even require several rounds of correspondence for disputing one error. You may not have the time to dispute all the errors. For this reason, it is helpful to hire credit rebuilding companies.

These companies can not only find and dispute the errors for you. They can also help you with other steps to rebuild credit. These can be buying and using rebuilding credit cards or applying for new loans.

Pay your credit card bills.

While the process of disputing false or negative details from your credit report is ongoing, you need to pay attention to some other steps to rebuild your credit.

You need to start by paying off all of your due accounts. Late payments can significantly lower your credit score. You may not be able to afford to pay the entire due amount at the same time. In such a case, it is imperative that you begin to pay off your credit dues slowly but steadily.

Once you start making timely payments, the improvements in your credit score will also begin to show.

Maintain a low credit utilization ratio.

Credit utilization refers to the ratio between your total debt and your total credit. It needs to be below 30% to not negatively impact your credit. So, you will need to ensure that you keep the balances low. It is imperative that you do not max out your credit cards. Doing so can adversely affect your credit score

Apply for new credit accounts.

It is also important to apply for new credit accounts once your credit has taken a turn for the better. As soon as your credit score begins to get higher; apply for a new credit card.

Ensure that you do not apply for more than two cards during this period (when you are rebuilding your credit) as it can hurt your score. Each time you apply for a new card, it generates a new inquiry into your credit. Each new inquiry temporarily hurts your credit.

Use credit cards judiciously.

To rebuild and maintain your credit, it is really important that you continue to use your credit cards with care. As you continue to make timely payments, it will help you in your credit rebuilding efforts.  

If you have any existing card with a long credit history, it is best to not close it. Long credit history can help your credit. So, even if any amount is due on it; simply pay it off and continue to use it sparingly.