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Did you know that there is no top secret in rebuilding your credit score quickly?
Most people expect that there are some top secret tips they are not aware of, but you probably know all the solutions already.
I was one of those people. I’d thought there is some kind of a secret that I can discover, but I failed. All I found were things that I already know.
The problem with most of us is that we love learning that we know a lot of things, but we fail to take action.
If you are here because you are looking for tips on rebuilding your credit score quickly then you better take action after reading.
But before we deep dive into the tips on how to improve your credit score, let’s first take a look at what a credit score really is.
And if you’re new to managing your money, check out these money management tips.
WHAT DOES A CREDIT SCORE MEAN
A credit score is a three-digit number that represents your creditworthiness. It is one of the things that lenders look for to evaluate your qualifications for a loan or credit.
FACTORS THAT AFFECT YOUR CREDIT SCORE
- Total Debt Amount– Refers to the total amount you owe.
- Payment History– This refers to your timeliness in paying your bills or debt.
- Length of Credit History– This includes the age of your oldest account and the average age of all of your accounts
- Type of Credit– This refers to the type of debt you have, revolving credit or installment loans.
- Hard Inquiries– This refers to the number of times you apply for a loan or credit.
- Credit Utilization– This refers to the ratio of how much you owe and your credit limit.
The credit score model was developed by Fair Isaac Corporation, also known as FICO. Here is the average FICO score range.
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
DIFFERENCE BETWEEN A FICO SCORE AND A CREDIT SCORE
According to myFICO, not all credit scores are FICO scores. Although FICO scores have been the most commonly used by top lenders since 1989, it’s not the only one out there. Other credit score models can give you an idea of where you stand.
For instance, your credit score usually refers to your VantageScore score, a credit score model that was established in 2006. It also uses the same algorithm as FICO, but the scores can still vary.
- Excellent– 750 to 850
- Good– 700 to 749
- Fair– 650 to 699
- Poor– 550 to 649
- Very Poor– 300 to 549
WHAT IS A BAD CREDIT SCORE
If your credit falls between 300 and 619, then you have a BAD credit score.
Having a poor credit score will cripple you in many ways, from not being able to get credit when necessary, to being stopped from making important purchases.
GUIDE TO REBUILDING CREDIT SCORE QUICKLY
A. IDENTIFY THE PROBLEM
Before you start fixing, you must be able to pinpoint where the problem is coming from. By establishing a baseline, you will be able to work and track your progress.
1) KNOW YOUR SCORE
To start to rebuild your credit score, you should know where you are at first so that you will know what your starting point is. You can get your VantageScore FREE from Credit Sesame.
As for your FICO Score, you can get it for FREE if you have any of the following banks.
If you do not have any of the above, there are affordable plans out there that can give you your credit scores from all bureaus.
2) EVALUATE YOUR CREDIT REPORT
Your credit score is separate from your credit report. Your credit report will not have your credit score and vice versa.
You will be able to get a free copy of your credit report from all bureaus every year. You can also access them through the Annual Credit Report Website.
Carefully evaluate the report from each of the credit reporting agencies and look for errors and other pieces of information that can impact your credit history.
3) DISPUTE ERRORS ON YOUR REPORT
If you found errors on your report, you might want to fix it. Credit repair agencies claim that they can remove bad entries from your credit report.
But did you know that you can have them removed yourself? There are two methods by which you may be able to get negative entries removed from your report.
Option #1: File a Dispute with the Credit Bureaus
Each of the credit reporting agency provides a step by step guide to dispute errors.
Option #2: Negotiate with Creditors
Dealing with creditors can be intimidating, especially if you’re not on good terms with them. But speaking directly to your creditors may help you get negative information removed from your credit report.
If you only have a late payment or two on your account, a creditor might be willing to remove the derogatory information once you’ve resumed a regular payment schedule.
If you’ve experienced repossession or had an account turned over to collections, payment in full might persuade them to remove the negative entry.
It might sound like a long shot, but you never know until you ask.
B. INCREASE YOUR CREDIT SCORE QUICKLY
Sorry to burst your bubble, but there is NO quick way to increase your credit score. It requires a process and a lot of patience. However, there are things you can do to help improve your credit score in the long run but not overnight.
No guarantee that disputing information on your credit report or negotiating with creditors will get negative items removed from your record. But if it doesn’t, the best thing you can do is try to build up some positive information on your report.
1) PAY YOUR BILLS ON TIME
The first thing you need to do when trying to rebuild good credit is to bring all accounts from “delinquent” to “paid.” Try to work out a deal with your creditors to accomplish this, or talk to a credit counseling agency.
But don’t miss payments on current accounts or put money toward those that are past due. If it comes down to paying one or the other, keep the current account current.
Once all of your accounts are current, put a priority on keeping them that way. Making your payments on time will raise your credit score over time.
2) CREATE A BUDGET
Having a budget will help you see where your money is going. You will be able to adjust it accordingly based on your goals.
By having a budget, you can determine if you are living within your means or not. And, you can distinguish between needs and wants.
Budgeting can help you pay your bills on time and pay your debts sooner because you can direct where every dollar goes.
3) BUILD AN EMERGENCY FUND
In some cases, bad credit is a result of irresponsible money management. But it often occurs because of unexpected financial hardship.
One day you might have all of your bills current, and the next, you could become disabled or lose your job. And if you fall behind on your debts, it will wreak havoc on your credit rating.
If you have an emergency fund built up, you can prevent bad credit from happening. You will be prepared to handle emergency expenses.
Start saving for one month’s worth of expenses and work your way up to six months. Keep your emergency fund in high-interest savings account that you can easily access in case of emergency.
4) PAY DOWN YOUR DEBT
If you have a balance on any credit card, be sure to pay at least the minimum monthly amount each month. Do your best to pay back your debt, and as quickly as you can manage.
Creatively find as many ways as you can to save money for debt payment. Also, consider a second job. If you can work even an extra day per week, it can help you pay back your debt sooner.
By paying off your debt, you will eliminate some of the interest that continues to build as time passes and build your credit score at the same time.
5) LOWER YOUR CREDIT UTILIZATION RATIO
Use as little of your credit card limit as possible. Ideally, you should not use more than 30% of your credit card limit every month.
Even if you are regularly paying it back in full, the habit of spending more than this percentage causes you to appear as a big spender. It will most certainly hurt your credit score.
If you have multiple credit cards with more than 30% utilization, stop using them immediately. Start paying them down as fast as you can.
6) DO NOT CLOSE YOUR OLDEST ACCOUNT
Don’t be tempted to close your credit card accounts, especially your oldest one. Remember, your credit history age is calculated by the age of your oldest account and the average age of all your accounts.
Credit cards can get people into trouble, but when handled correctly they can be your best friend. Remember that having a credit card long term shows stability and will raise your credit score.
7) OPT FOR A SECURED CREDIT CARD
If you’ve applied to card companies in the past but have gotten rejected, there are still things you can do. You get a secured card.
Secured cards require a deposit that generally serves as your credit limit. If you don’t pay your bills, the card issuer can withdraw the deposit.
Get one at a bank around you, and preferably the one you do business with. You have the best chance of getting accepted there.
HOW LONG DOES IT TAKE TO IMPROVE CREDIT SCORE
According to Debt.com, the repair process can take 3 to 6 months, but the rebuilding can take up to a year or more.
You also have to take into consideration factors like how bad your credit was, how significant the damage was to your credit, and a lot more.
There you have it!
Repairing your poor credit score is not an easy task nor quick, but it is entirely achievable. Take your time and choose as many ways as possible to give it a boost. In no time at all, you will be on your way to better credit.