Five Steps To Help Rebuild Your Credit Score

Low credit scores have become a major issue in recent years, and especially since the start of the economic downturn that we have all been dealing with. If you are worried about what your credit score might mean, or if you are struggling to deal with your low score, then the good news is that you’re not alone. The better news is that there are ways you can rebuild your credit score and come back from financial difficulty, as long as you are committed to the process and have patience.

Any journey out of debt can be a time consuming and exhausting venture, but the fact is that the so-called quick fixes and bargains available are often too good to be true. They are installed to benefit the parties that offer them, and not your own situation. No matter how dire your situation is, it is advisable to avoid paid services especially when free help is available and often the best that you can get.

The first step in rebuilding your credit is finding out your current credit score. Your 3 digit score can range between 300 and 850, and can greatly impact your interest rates and qualification in the application of future loans. You can obtain your credit score from one of the three credit reporting agencies.  

Step 1 - Pay off the Plastic

While paying off or paying down other loans can be beneficial, nothing helps increase your credit score more than paying off your credit cards. Potential lenders love to see a large gap between the amount of credit you have and the amount that you are using, so getting your card balance below 50% of your limit can do wonders for your credit score.

If you have multiple credit cards, try paying down the cards that are closest to the limit rather than focusing on your highest rated card.  

Step 2 - Use your Credit Cards Sparingly

The bigger the balance that you wrack up with your card, the lower your score is usually going to be. This is true even if you end up paying off all of your bills each month. Credit bureaus usually utilize the balances on your last statement of each month, and may not have access to the payment you recently made.

You can increase your score by keeping your charges at less than 30% of your limit at all times, which is why personal finance software can be so helpful. Keep track of your spending and use debit and cash when your credit card balance is rising substantially, and you will be far better off in the long run.

Step 3 - Bring an Old Card Out of Hiding

The more experience you have using credit cards, and the older your credit is, the better. That is why an old credit card that you have had in your possession for years can be incredibly beneficial. However, if you haven’t used your card in a long time it is common for issuers to stop updating your account. While the card will show up under your name, it will be given far less value by potential lenders.

You can counteract this by ensuring that you use your older cards at least once every few months and then pay it off when your next statement arrives.

Step 4 - Resolve Disputes and Old Negatives

There are many small instances that may have happened in your lifetime that are affecting your credit score. If you have any issues that may have gone into a collections account, now is the time to try and get rid of them. Many times, if the issue is a small or old one, you can dispute the case as being wrongfully in your name. There are times when collections agencies will not even want to bother with the dispute and getting rid of it can give your credit score a huge boost.

If you're lucky enough to be dealing with a lender that has merged with another company, or handed their records to someone else, then this tactic can be even more effective.

While these 4 steps for rebuilding your credit score may seem minor, they are effective if your score is in need of repair. If you have a credit score over or around 700 then steps such as this will not have much of an impact, but if your score is below 500 then you will benefit greatly from implementing some small changes.

When it comes to credit scores, baby steps are often crucial. Take it slow, be patient, and stay committed. Good things will come.