Are you looking how to rebuild your credit? Building credit can be difficult.
There are many reasons you might need to rebuild your credit.
Maybe you had a rough patch financially and your credit score took a hit or maybe you never really bothered to build up your credit in the first place.
No matter what the reason, rebuilding your credit can be a daunting task. But it’s not impossible!
Either way, you’ll need to start slow.
You can’t just make a bunch of credit purchases all at once because your score will only go down again, and it might even go lower than where you started!
Follow these steps, and you’ll be on your way to a good credit score in no time.
Why do you Need Credit?
Before we get into how to rebuild your credit, let’s take a moment to discuss why you even need a good credit score in the first place.
Credit is important because it’s essentially a measure of how much trust lenders have in you.
The higher your credit score, the more likely you are to be approved for a loan and to get the best rates.
Here are some important facts about credit scores:
Having a good credit score makes you more attractive to lenders, which means you can save money on interest payments or get better loan terms.
Having good credit opens up many financial opportunities – how much your employer will let you borrow for a car, whether they’ll let you use your credit card for business expenses, etc.
Having good credit will usually get you better insurance rates, because the risk is lower that you’ll have to file a claim.
On the other hand, having poor or no credit may limit your job prospects.
Some employers even check your credit score before making a hiring decision!
Why do People Have Low Credit?
There are a variety of reasons that people end up with low credit.
A poor economy, divorce, and even identity theft can cause your score to take a hit.
- Never had credit history before.
- Filed for bankruptcy.
- Couldn’t make payments or made late payments.
- Worked overseas without using credit for extended periods of time.
- Got divorced or went through a serious family problem.
- Not using credit (If you don’t use it, you lose it!)
What Makes up your Credit?
Your credit score is made up of five different factors:
– payment history (35%)
– debt utilization (30%)
– length of credit history (15%)
– new credit (10%)
– type of credit used (10%)
How to Check Your Credit Score
Now that you understand why having good credit is so important, let’s take a look at how you can find out what your credit score is.
There are many ways to check your credit score, but the easiest (and most accurate) way is to use one of the three major credit bureaus:
You can get a free copy of your credit report from each of these agencies every year.
You can also use a site like Credit Karma to check your score for free.
How to Rebuild Your Credit
- Make sure to pay all of your bills on time, every time. Late payments are the biggest factor in determining your credit score.
- Keep your debt utilization low. This means not using more than 30% of your available credit at any time.
- Create a long credit history. The longer you’ve been borrowing money and paying it back on time, the better your score will be.
- Avoid opening too many new accounts at once. This can hurt your score because it looks
- Keep your debt utilization low. This means using less than 30% of your total credit limit on any one card and less than 10% on all of your cards combined.
- Only use credit cards for emergencies. Credit card debt can be very damaging to your score.
- Monitor your credit score regularly. This way, you’ll know if you’re making progress and can adjust your strategy as needed.
You’ll probably find that your score changes quickly at first and then more slowly.
After all, you don’t use credit every day (hopefully), so it will take a while before lenders check up on you again.
It takes time to establish credit, but the benefits of having good credit are worth the effort.
If you follow these simple steps, you’ll be on your way to a good credit score in no time!