There are different ways you can harm your credit history, but there just as many ways to salvage it, too. If you want to know how to rebuild your credit, here are five steps you can start taking.
Step 1: Check Your Credit Report
The first step in rebuilding your credit is determining which areas need improvement, and getting a copy of your credit report is the best way to go about it. Do you have a lot of late or missed payments? Is your debt utilization too high? Or was there something more serious, like a bankruptcy? All of these factors can lower your credit score, and your credit report is where you can see where you went wrong. Once you’ve identified the reason behind your low credit score, you’ll be able in a better position to take action.
It’s also important that you check your credit report for any errors or fraudulent accounts, as these errors can bring your credit score down, too. If you discover an inaccuracy on your credit report, bring it to the attention to the creditor so they can remedy the problem and revise what they are reporting.
Step 2: Make Arrangements to Bring Your Accounts Up To Date and Pay Down Debts
Your payment history is the largest factor affecting your credit score, so if you’ve been behind on your payments – or haven’t been making your payments on time – your credit situation likely won’t improve much unless you get your accounts up to date.
If you’re in a tough spot and you can’t afford to bring your delinquent accounts up to date at once, contact your creditors to see if you can negotiate a payment arrangement that works with your budget. If you and your creditors aren’t able to work out an arrangement, an accredited, non-profit credit counsellor may be able to help you create a plan to bring your accounts up to date, and pay down your debt.
Step 3: Rebuild Credit with a Secured Credit Card
Once you’ve developed a plan to tackle your debts and get your payments up to date, the next step is to build a consistent payment history. An important part of building credit is demonstrating that you can pay back the money you borrowed and prove to creditors that you can responsibly manage debt. One of the best ways to rebuild credit is with a secured credit card.
Step 4: Make At Least the Minimum Payment By the Due Date
As you work towards building your credit history, it’s critical that you make your payments on time, and this goes for non-credit bills as well. A missed utility payment that is way past due, an outstanding cell phone bill, or old parking tickets can get reported to the credit bureaus, so it’s important that you start establishing a reliable payment history by paying at least the minimum payment on all your bills by the due date.& At the very least, you want to avoid missing payments or constantly making late payments.
Step 5: Adopt Good Financial Habits
Developing smart spending and saving habits are crucial to rebuild your credit score, and one of the best ways to do this is to create a budget that accurately reflects how much you earn and how much you spend. With a budget you’ll know how to live within your means, and you’ll be able to manage your money better.