One of the worst financial fears anyone can have is rebuilding their credit score. And with the current economic downturn, more and more people are finding this financial fear coming true. Often the task of rebuilding your credit is so monumental that it’s easier to start from scratch. Though it might take a lot of time and effort, it’s definitely possible to rebuild your credit score once it takes a hit.
But to do so, you need to first figure out where to start and the best practices to follow to rebuild your credit score in the shortest time possible. Here’s everything you need to know to rebuild your credit score after a drop.
Pay Your Bills on Time
The most common bad habit most people have when it comes to managing their finances is not paying their bills on time. Unpaid bills often come with an added late fee which might not seem much for a single bill payment but adds up substantially when combined with your other delayed bills. While it’s easier than done, this is something that’s a must.
Payment history is one of the main factors that impact your credit score. More important than late fees are the delayed payment reports, which will definitely not do any favors to your credit record. Delayed payment records take a long time to get away, so make sure to pay your bills on time.
If you’re not accustome to or unable to pay your bills in time due to mismanaged finances, then you need to come up with a good financial game plan. Take personal loans if necessary to pay your bills on time as long as you can ensure the loan repayment in time without affecting your other financial necessities.
Catch Up on the Bills
While some people have trouble paying their bills on time, there are others who are significantly behind their bills. No matter how you look at it this is the worst-case scenario when it comes to rebuilding your credit score. The first thing you should do to work towards this goal is to review your credit reports.
Often, mistakes are made in credit report compilations- bills/payments paid or exempted can often stay on record, and sometimes the numbers can get messed up. Very few things can be as frustrating as having a bad credit report because someone else made a mistake. When you start catching up on bills, prioritize the ones where your accounts are still open.
‘Payment history’ and ‘Amount Owed’ comprise 65 percent of your total FICO score, so keeping these up to date should be your top priority when recovering your credit score.
One important aspect of credit card score and usage most users tend to ignore or forget is maintaining optimal ‘credit utilization. The term refers to the percentage of credit a user is using on credit card payments. The amount you have has a high impact on your score- the more credit utilization you use up the worse it is for your credit score, so make sure to keep the number as low as possible.
According to most financial experts, you should never exceed more than 30 percent of your credit utilization on your card. If you already have a lot of credit utilizations, focus on lowering the ones that are the highest and then work your way down.
Get a Secured Credit Card
Getting a credit card can be tough once you get tagged with a poor or bad credit score, which is quite the dilemma since it’s almost impossible to improve your credit score without using one. If you find yourself in such a situation, then getting a secured credit card can be the best way to go. These credit cards are the best option when you’re trying to fix your credit score.
Many companies out there provide secured credit card service for those who have a credit score of 500 or even less in some instances. Knowing how to use 500 Credit Score Credit Cards can make all the difference you need to rebuild your credit score.
One Step at a Time
Rebuilding your credit score after it drops can be a long and difficult journey but definitely needs to be taken to fix one’s finances. As long as you follow the tips and tricks above, you shouldn’t have too much trouble in the long run. But if your credit score is particularly bad, consulting with a professional is the best option.