How to Rebuild Your Credit in 5 Easy Steps

How to Rebuild Your Credit in 5 Easy Steps
September 26, 2017 northstar

Credit is one of the most important commodities to possess. From obtaining a store credit card to purchasing a house, credit is an essential factor that can either make or break you. It’s as if the world opens up for you if your credit is decent whereas there are rounds of denials when your credit is poor. For this reason, rebuilding your credit after a bad credit history is important.

The following are five easy steps for how to rebuild credit.

Check Your Credit Reports

The first step to rebuilding your credit is to check your credit reports. You have to be informed about your current credit history before you can really begin the credit rebuilding process. It is highly recommended that you obtain all of your credit reports from the major credit reporting agencies in order to determine where you stand credit-wise.

It is very possible that you have a different credit score for each credit reporting agency. In order to rebuild your credit it is best to thoroughly review each credit report for any duplicate entries of debts or errors. Removal of duplicates and errors can help improve your credit significantly.

Take time to review all of your credit reports to ensure that the information reported is accurate and to determine which items need to be addressed in order to improve your credit.

Pay Down/Off Your Debts

Paying off your debts is one of the best ways to rebuild your credit. Carrying any amount of unpaid debt lowers your credit score especially if your creditors report your debts when they are delinquent.  Thus, paying off your debts is a way to increase your credit score.

In some cases, creditors may be willing to accept a settlement for older debts where you agree to pay a fraction of the original debt and the creditor will accept this reduced payment as payment in full for the original debt. If you are interested in such an arrangement, make sure to get the details of such an agreement in writing.

If you are not able to pay off your debts in full, contact your creditors and make payment arrangements. Creditors are usually willing to work with you in order to get a debt paid off in full. Also, many creditors will report your payments to the credit reporting agencies which can help you raise your credit score while paying down your debt.

Pay Your Bills on Time

Paying your bills on time is one of the simplest steps to rebuilding your credit, and you can start right now. For most people, payment of bills is arranged around incoming funds from jobs or other sources of income such as retirement funds or alimony. You can make timely bill payments by rearranging your bill payment dates to coincide with incoming funds. Contact your creditors to see if it is possible to change your due dates to make it easier for you to pay your bills on time.

Reduce Your Credit Utilization

While using some credit is good, it is possible to utilize too much credit. Oftentimes, while rebuilding credit, people think that it is a good idea to open a number of credit accounts. However, if you utilize a high percentage of your available credit, this can actually lower your credit score. Consider reducing the amount of credit that you use by paying down existing credit lines and only using a portion once paid down.

Obtain New Credit

Rebuilding credit by obtaining new credit is advised. However, it is important that you carefully consider the ways in which you obtain new credit in order to rebuild your credit. There are companies that offer secured credit cards that allow you to receive a credit card with a credit line that is equivalent to the security deposit that you pay for the credit card.

It is important for you to remember that you are rebuilding your credit. Do not take out more credit than you need. The goal of obtaining new credit is to help you establish a positive credit history that is supported by your ability to pay your creditors in a timely manner.

Rebuilding your credit does take time. However, if you follow these easy steps, you will rebuild your credit eventually while learning the importance of maintaining good credit.