Failure to repay loans and credit card bills hampers credit score, barring people from taking more credit which often takes a toll on almost all aspects of their life. Though the damage is not a one-way street, repairing bad credit score needs discipline and perseverance, besides the fact that you need to settle all types of credits you have may have borrowed from different lenders. If, however, you are determined to resurrect your credit profile and live in a conducive financial environment, here is the way forward in 10 simple steps.
1. Thou Shalt Obtain Thy Credit Reports
Whenever any financial institution rejects your loan application due to poor credit score, the first thing you need to do is get a copy of your credit reports. Every US citizen is entitled to a copy of their credit report once every year. You can download your credit report by visiting AnnualCreditReport.com or through the three major credit bureaus: Equifax, Experian and TransUnion.
2. Thou Shalt Screen the Entries
Many people with a poor credit score aren’t aware of how the credit bureaus calculate their credit score, which is one of the reasons why they are unable to rightly navigate their credit repair initiatives. To help, here are the five elements that determine the credit score of any individual along with the percentage of their influence:
- Payment history: 35 percent
- Amount owed: 30 percent
- Duration of credit history: 15 percent
- Types of credit: 10 percent
- New credit: 10 percent
3. Thou Shalt Check Due Payments and Dates
As mentioned above, 35 percent contribution to poor credit score is due to a blemished payment history. Many a time, people forget to pay their bills by the due date or are unable to pay the amount in full, all of which reflect in their credit score. Therefore, the next step to repair poor credit is to check if there are any overdue liabilities reported by any lender.
4. Thou Shalt Pay Small Dues on Credit Cards
Managing several credit cards is always a risky affair, as there is always a fair possibility of the holder missing out on the payments for any of the cards. Even small balances due on your credit cards may have a large impact on the credit score. Therefore, look for any and all outstanding payments on the all the cards you hold, reflecting in your credit reports.
5. Thou Shalt Start New Lines of Credit
Contrary to common notion, taking credit doesn’t hamper the credit score; failing to repay them does. In fact, starting new lines of credit is one of the easiest ways to repair poor credit score. Start by opening new financial accounts and maintain them religiously.
6. Thou Shalt Limit Credit Card Usage
Credit, though imperative in the modern world, can lead you into vicious spiral if you aren’t careful. To start rebuilding your credit profile, limiting the credit card usage. Try to maintain available balance at least 20-30 percent of the overall limit.
7. Thou Shalt Avoid Closing Credit Cards
Generally, those with a poor credit score surrender their credit cards, as they think this stops their credit score from deteriorating further. This notion, however, is quite wrong. In fact, closing of credit cards has a negative impact on the credit score of the user.
8. Thou Shalt Monitor Credit Score
Though you are entitled for one copy of your credit report each year, it is advisable to check your credit data every 4 months. There have been more than a few instances of erroneous reporting by all three credit bureaus, so it becomes all the more important to be sure.
9. Thou Shalt Pay Bills on Time
Timely payment of bills – although a pretty rudimentary requirement for credit repair – is often ignored. Ironically, no matter what you do to reestablish your credibility as a borrower, without timely payments all efforts will be futile. Therefore, set reminders or avail auto-payment facility.
10. Thou Shalt Consult Credit Experts
If you find it a challenge to manage all aspects of the credit repair process on your own, consult credit restoration professionals. Having said that, it is important to remember are no quick fixes for a poor credit score. Therefore, stay away from any company promising quick recovery.
Complete Credit Restoration is a Process
Having a low credit repair seems like a trivial affair, but only as long as it doesn’t start affecting the important aspects of our lives. Though credit repair is a gradual process, it is a necessity for those with a low score, if they wish to have a stable financial future. Hope the information shared in the post helps you navigate through the tricky mazes of credit restoration process. Should you wish to learn more about credit restoration, feel free to speak with one of our consultants