If you find yourself dealing with a poor credit score, it is not the end of the world. There are a number of steps you can take to rebuild and improve your credit score. Though rebuilding your credit won’t happen overnight, it can certainly be done if the correct measures are taken.
How Are Credit Scores Calculated?
Your credit report is a compilation of data and information regarding your financial behavior gathered from different lenders, public records and credit collection agencies. In turn, your three-digit credit score is based on your credit report’s information, and is typically driven by a variety of factors, including:
- Your payment history
- The total amount of debts you owe
- The length of your credit history
- The types of credit you have
- Credit utilization rate
- Public records data (record of bankruptcy declaration, tax liens or civil judgments)
- Number of inquiries on your credit report
What Can I Do to Rebuild My Credit ?
Here are 7 easy steps you can do to rebuild your credit score effectively:
Check your credit report for possible errors and discrepancies.
Check your credit report and see if you can spot inaccuracies or possible signs of fraudulent activities. Check out AnnualCreditReport.com for your free annual credit report.
Develop a realistic budget plan and stick to it.
People often fall into the debt trap due to poor financial habits. Create your own budget to follow and then make sure you stick to it.
Set up a strategic payment plan.
Do your best to reduce and ultimately pay off your debt. Set up automatic payments so you won’t forget your payment obligations. If you have ways to boost your income, then do so.
Be mindful about paying your debts on time.
Late payments have a huge impact on your credit score. To keep your score in good shape, make sure to pay your debt on time, all the time. Make paying down your debt your top priority. Keep open older accounts. Don’t close your old accounts unless they’re costing you more in fees. Your old accounts can help you achieve a longer credit history, which can help boost your credit score.
Maintain good credit habits.
Start by developing healthy financial habits. Maintain a good, consistent credit history by ensuring you pay your bills on time, avoid going beyond your credit limit and tweaking your spending habits.
Choose a credit card you can use to rebuild your credit and be sure to use it responsibly.
Stop applying for multiple unnecessary credit cards. Instead, consider opening a single credit card which you can use to build a positive credit history.
One of the important foundations of your financial health is your credit report. On your credit report, a good credit score can help you get better loan payment terms and lower interest rates. On the other hand, if you have a poor credit score, you may have trouble securing certain types of loans, and even have trouble leasing an apartment or landing a certain job.