5 Ways to Start Rebuilding Your Credit

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Written by Guest | June 26th, 2019
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Guest Post by Kristen Baker

If you’re reading this, you’re likely looking for ways to rebuild your credit. Whether you maxed out a credit card, made too many late payments, filed bankruptcy, or have too many hard inquiries on your credit report, the thought of raising your credit score may be daunting. However, you can rebuild your credit score by setting achievable and realistic goals every month. We’ve provided some tips to help you restore your credit.

Get organized

To set yourself up for success, start organizing your financial documents and identifying bill payment due dates. Open all mail and organize documents by importance. Pay close attention to increased interest rates, “pay by” dates, and any other calls to action. Shoving incoming mail to the side won’t stop lenders from calling and contacting you. Set old debt and current monthly bills on the same playing field. They’re both extremely critical for achieving a higher credit score.

Work with your financial institutions to set up automatic payments, which will allow your deposits to be extracted from your account when they are due. This is the best way to avoid late fees.

Last, budget sheets are a great way to stay financially responsible and organized. Budget sheets help you better manage your money and keep in line with your income to debt ratio. Organize your document by income, expenses, and debts. Include subsections like entertainment and philanthropic contributions too.

Being honest with your expenses will help you to accurately assess how you can settle debts and improve your credit score.

Save

Saving is pretty straightforward — open up a savings account and put away a healthy chunk of your income. However, when you have a low credit score, opening up a savings and checking account through a traditional bank can be quite the task. Some banks turn to the Chexsystem when vetting if you can open up an account with them. A minor blemish on your report can easily make you ineligible to bank with them. Turning to a second chance banking option may be your best bet when starting from the beginning. This alternative way of banking will help you save money by avoiding pesky overdraft fees and additional hidden fees. Every penny counts in this sense.

After opening an account, decide how much money you can stow away based on your budget. Later determine how you want to utilize this account. You can use these savings to pay off a debt in full or use it for a rainy day. Having some financial cushion is always a smart move when you are deciding how to rebuild your credit.

Another aspect of saving is to keep your expenses low. It may be a good idea to start cutting back on going to after-work happy hour or the movies until you get yourself back on the right track.

Set up payment plans

Reach out to your debt repayment lenders and set up a payback plan. If your debts have gone into default, you may have to call the collections firm that your payment has gone to. Speak with the lender or collections company to see what sort of repayment options they offer and decide on an amount that works with your current budget. Do not agree to any terms that you are unable to satisfy consistently.

It’s okay if you are unable to begin settling debts with each lender that you owe. Prioritize your payments that incur a high-interest rate; that way you’ll know the best repayment strategy for those fees.

Start building healthy credit

Depending on the status of your current score, you may be eligible to obtain a new credit card. Evaluate what you need a credit card for and apply for the credit card(s) that work best for you and your current needs.

Once you get a new card, establish a steady payment history. Keep your new debt low and always pay more than the minimum towards your original debt. You want to show that you can manage your money responsibly.

Avoid new inquiries once you receive a new credit card, pay your bills on time, and obtain any cash advances that your new credit card may offer.

Consolidate

Placing your student loans or multiple debts into one loan repayment can make managing your debt a simpler process. Meeting one monthly obligation seems a bit easier to keep up with compared to making payments for multiple lenders each month.

Consolidating your loan can also help you build a new credit history, which will affect your credit score significantly.

Getting your credit back to health will be worth it in the end. Prove yourself more creditworthy to lenders so it will lead them to lend more substantial amounts of credit, and confirm that you are less risky than those with a poor credit score. Having a stronger score will help you obtain lower interest loans as well.

Kristen Baker is a personal finance enthusiast and content creator. Outside of work, she thoroughly enjoys taking her dog to “Dogs Allowed” coffee shops, reading, and admiring art exhibitions. 

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