Having poor credit can add a lot of stress to your life. It can make getting loans for a car or home difficult, and can cost thousands of dollars in higher rates. For those looking to improve their credit, many companies will tout themselves as credit repair agencies that promise to help you improve your credit. While these can certainly help, there’s no reason you can’t rebuild your credit on your own.
Using a Secured Credit Card
First, consider using a product like a secured credit card. A secured card works by first giving the bank a deposit, usually a few hundred dollars, that secures the debt on the card. You use the card and make payments just like normal, but in the event you don’t pay, the bank can take that deposit to makeup the difference.
What this does is give the banks a guarantee that they won’t lose money, while also giving the user the ability to work on their credit.
Due to the fact that the secured card is backed by your own money, it’s much easier to get one than a traditional credit card. This makes them an excellent option for those with bad or even no credit!
A good example of a secured credit card is this card. This is a perfect example of a secured credit card as it hits all the major points, and we highly recommend it. It requires as little as $200 to get started, has an easy and quick application process for even bad credit applicants, and reports usage history to all the major credit bureaus.
This makes it an excellent to rebuild credit with, while at the same time preventing misuse that could sink you deeper into debt. For those looking for an easy way to rebuild their credit score, our recommendation goes to this secured credit card, as it provides all the tools to do so.
Check Your Info
Next, always check your credit report. This not only gives you a starting point to build from, but also can help uncover incorrect information. Wrong information on a credit report can seriously impact your score. It’s also important to realize that there are three different credit reporting agencies, and each one can have a slightly different score.
You can check your credit report 3 times for free (once per credit reporting agency) at Annualcreditreport.com. Here you can request a free report and see exactly what a lender might see.
Many credit cards also give free credit reports as part of their perks. While it’s not a good enough reason to go out and get another one just for this, if you already have one that offers it there’s no reason not to take advantage of it.
If you do find that there is incorrect information on your credit report you’ll want to report this to the agency immediately. The agency must investigate your claim within 30 days. If you have any documents that can help prove your claim then be ready to supply them as they can greatly help your case. Removing incorrect, harmful information off your report can help quickly shoot that score back up.
Checking your credit is also a good way to prevent identity theft
Reduce Your Debt
One of the factors that goes into calculating your credit score is how much debt you have versus credit. For example, if you have a $20,000 credit line yet have $15,000 in credit card debt this looks very unfavorable for you.
In general, try to keep your debt utilization under 25% of your total credit line, although lower is always better. This shows that you can manage credit well, and keep your debt to reasonable levels. Set this as a goal, and work to get your overall debt down.
This doesn’t only apply to credit cards, but any other sorts of debt you might have as well. All sorts of loans also appear on your credit report, and reducing these liabilities can help improve your score.
Stay Current On Your Payments
Building off the last point always stay current on your payments. Having a strong history of paying on time is the best way to build a credit score. Lenders want people who repay their debts after all!
The best way to pay down debts is to put as much as you can spare to them. Paying the minimum payment will eventually pay off a card, if you stop using it, but it will take a long time and you’ll be paying interest all the while.
If you can spare extra, it will help pay off your debt sooner as well as reduce your overall utilization mentioned above. Don’t put yourself in a position where you can’t afford afford next months payment though.
The key here is consistency, always making your payments on all of your debts. You never want to miss a payment, as even a single missed payment can negatively impact your score. This includes your credit cards, but also things like utilities as well.
Consider Keeping Cards, Especially old ones, Open
Another key factor of your credit score is the length of your credit history. When people are looking to rebuild their credit they may be tempted to close out their credit accounts. This is a tricky subject though as dropping cards can actually hurt your credit.
For one, if you close old accounts they will drop off your credit report and may reduce the length of time that it appears you’ve had credit for. This will negatively affect your score, as the longer you’ve had credit the better.
It can also hurt your overall debt utilization. Any cards you cancel will no longer count towards your overall credit limits. This then means that any debs will count as a larger chunk of that.
For example, say you have three credit cards each with a $10,000 limit, and a total of $15,000 in debt. You decide to cancel one of the cards which drops your total credit limit to $20,000. Before, your debt utilization was 50%, but by just cancelling your card it jumped to 75%! A jump like this can actually have the opposite effect and hurt your credit.
Credit Repair Tips
Repairing your credit doesn’t have to be difficult, and even those with very bad credit need not lose hope. With a few quick changes in spending, and some dedication to good credit habits, anyone can rebuild their credit!
Where Do I Start When Rebuilding My Credit?
The best place to start is by simply getting a copy of your credit report. This can help you get a baseline for where you currently stand, and gives you a number to compare against as time goes on. It can also help you make sure that there are no incorrect entries on your report. If there are, removing them as soon as possible can help raise your score quickly.
What Is The Best Way To Rebuild Your Credit?
The best way is simply to stay current on all your payments. Consistently making payments on time, every time is a surefire way to improve your credit. Outside of that, work on paying down debts, and proving that you can manage your debt responsibly. The key is consistency over time.
Do I Have To Use a Credit Repair Agency?
No! You don’t have to use a credit repair agency, any tasks they can do you can do as an individual. With a bit of knowledge, anyone can work on rebuilding their credit on their own.
How Does a Secured Credit Card Help Rebuild Credit?
Secured credit cards work by taking a deposit that is then borrowed against as your credit limit. This helps by limiting the amount a person can potentially get into debt by using the card. It also poses a much smaller risk for the card issuer, so they are more likely to approve bad credit applications.
This then gives them the ability to start rebuilding their credit even if they can’t get approved for a traditional card.