An individual’s credit score is heavily impacted by how often they make their credit card payments and by the amount of debt they are carrying. If either of these two factors are neglected, your credit score can significantly decrease. Nowadays, many lenders, banks and landlords, look at a person’s credit score before doing any business with them. A bad credit score can therefore hinder future goals like finding a place to live and getting a new job.
You don’t have to be stuck with a low credit score forever. There are a few key things you can do in order to rebuild your poor score. Some of these things include removing negative credit report information and catching up on your bill payments. These two steps are the best starting points to rebuilding your credit score. However, more effort will be needed on top of these steps in order for you to be eligible for perks like low interest rates. This will require you to prove to new lenders and creditors that you are able to responsibly handle money and bills. Starting that journey can be daunting, but once you start building momentum, you will be much closer to a good credit score than ever before.
Get New Credit Accounts
Some people with bad credit scores might be reluctant to start using credit cards again; but avoiding credit cards slows down the credit building process. Having a credit card that you pay back on time and in full is an excellent way to establish a positive payment history, getting you back on track to good credit.
Moreover, a poor credit score will make it difficult to get approval for a new credit card from a well-known bank. But, there are still other options available, despite having poor credit. For example, a secured credit card is a good option when it comes to re-establishing credit. A secured credit card allows a person to deposit money with the credit card issuer. The credit card comes with a limit, which typically matches their deposit. So if payments aren’t made on time, then the issuer will use that person’s deposit in order to pay off the card. Plus, if a person builds a record filled with on-time payments, many of the issuers will make their card unsecured and even return the deposit.
While opening credit card accounts can increase your credit score significantly, there is definitely a sweet spot when it comes to the number of credit accounts you should have active. The credit card applications may initially weaken your credit score. Therefore, it is advised that you don’t open too many accounts at once, and have no more than 2 active accounts when rebuilding your credit score.
Another advantage to opening a credit account is that if you get rejected, there is a silver lining. When a person’s credit card application gets denied, they will receive a letter explaining the reasons for the denial. This can be a free guide to the steps you can take to build your score to the point of future approval.
Avoid Certain Types Of Credit Cards
When applying for a new credit card, there are two types of cards that you should avoid.
- Subprime Credit Cards: When on the market for a new credit card, these should be avoided. Companies behind subprime credit cards tend to prey on individuals with bad credit. These cards oftentimes come with very high interest rates and fees, so that the credit card initially appears affordable. This leads many down a dangerous path to even more debt, resulting in even worse credit.
- Prepaid Cards: Beware of prepaid cards when trying to rebuild your credit score. Even though they’re easy to get a hold of, these cards don’t exactly get reported to the credit bureaus since they are not technically credit cards. Therefore, it does not matter how responsible the owner of a prepaid card is, using this card will have absolutely no effect on your credit score, rendering the card useless when it comes to building your credit.
Work On Building Good Credit Habits
In order to successfully build new credit, it is crucial to get rid of the damaging spending habits that gave you a bad credit score in the first place. Business as usual will damage your credit score even more. When it comes to improving your credit, it’s imperative to break habits such as purchasing things you cannot afford, paying only your minimum, and skipping or forgetting card payments. Furthermore, to improve your credit score, you should always stay below your credit limit, and make your payments in full.
Creating a budget is an excellent way to get a hold of your bad spending patterns, as it will make you more mindful of where your money is actually going. This will help in avoiding credit card use for every payment as you will spend money that you actually have instead. Ultimately, these things will improve your credit score.
Check Your Credit Report
A bad credit rating occurs because you are failing to meet your debt obligations on time. When you begin to carry large balances – whether it be credit cards or auto loans – your credit rating starts to slide.
The biggest problem with bad credit is not really knowing where to look. Many people are so fed up with negative items on their credit report that they don’t even bother to check it anymore, not knowing that it can get better. It takes only two weeks for negative items to be removed from your credit report by simply disputing them. It’s important to keep on top of your credit report to make sure that no more negative items are added, as these will hurt your overall score.
If you have several small accounts that are nearing their limits and do not have the funds to pay them off, simply call the credit bureau as they will always be happy to work with you to find a solution. You may be able to move money around from your credit accounts.
Bad credit cannot be changed unless you take action and start changing your spending habits. By simply paying your bills on time, buying only what you can afford and keeping track of your credit card accounts, you’ll be able to remedy your damaged score, and eventually enjoy the many perks of having a good credit score. Remember, too many credit cards can hinder the rebuilding process, and one to two credit cards should be enough to get you started on building your credit. Additionally, staying updated on your credit report will also help greatly when it comes to increasing your credit score. By following these basic tips, your credit score will be back on track before you know it.