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10 Ways to Repair Your Credit

10 Ways to Repair Your Credit

Most people will need a loan at some point in their lives, whether it’s to purchase a home, car, or even pay for a wedding. A great credit rating is the key to being approved for a loan – if you possess a solid credit rating, the odds of a lender extending credit to you is almost guaranteed.

But what if past mistakes have decimated your credit? What if lenders grimace when viewing your credit report and turn you away each time you are seeking a loan? Without a doubt, a poor credit rating will severely limit your ability to obtain financing.

Luckily, there are many ways to repair your credit. All you need is time, discipline, and perseverance. If you want to know how to rebuild, here are 10 things you can do right now.

Pay your bills on time

One of the easiest ways to begin fixing your credit is to ensure your bills always get paid on time. Missed and late payments have adverse effects on your credit score, so timely payment of bills is crucial (your payment history accounts for about 35% of your credit score). If timeliness is not your strong point, consider setting automatic payments – that way you’ll never forget to pay a bill again.

Make at least the minimum payment

If paying off your credit card balance in full at once is not realistic for you, strive to at least make the minimum payment on time. This is a great way to repair your credit and establish a reliable track record. Paying something consistently and on time is better than paying nothing at all.

Check your credit report for errors

It’s possible that your credit rating may be low partly due to errors. This is why it’s critical to obtain a copy of your credit report and scrutinize it – you may discover errors you otherwise would have never known about. If you find something that’s inaccurate and suspicious, make your creditors aware so they can revise the status of your account.

Pay down your debts and bring your accounts up to date

Make arrangements to pay down as much debt as you can. Contact your creditors to try and negotiate a payment plan that will be manageable for you. If you’re not able to bring your accounts up to date at once, they may be open to creating a plan that will work within your budget.

Credit utilization is an important aspect of rebuilding your credit. For example, if you’re credit limit is $10,000 and you’re using $8,000 consistently, your credit utilization is 80%. Your goal should be to reduce your credit utilization to under 50%. Ideally, it should be 35% or lower.

Create a budget

While a budget won’t directly improve your credit score, it can act as a check on your spending. One of the key reasons people end up damaging their credit is because they have fallen into the bad habit of paying for things they cannot afford, first by depleting their chequing account and then resorting to credit cards.

If you’re not sure where to start, consider giving the 50-30-20 budget a try. This popular budget divides your after-tax income into three categories: 50% needs, 30% wants, and 20% savings and debt payments. With some discipline and planning, you can learn to make financially prudent spending decisions and curb bad spending habits.

Keep your credit card balance low - but not too low

Maxing out your credits on a consistent basis and not paying them off is not good practicecredit bureaus keep tabs on how much credit you use and compare that to how much you have available.

Instead, use your credit cards to make more frequent smaller purchases, taking care not to use up too much of your available credit. The foundation of good credit is built on your ability to use credit and pay it back on time, which indicates to credit bureaus that you are responsible when it comes to your finances.

Increase your credit limit

If you’ve gained some traction in implementing good credit practices, consider upping your credit limit. The goal is not to gain access to more credit so you can reward yourself with a spending spree, but to lower your credit utilization, thereby increasing your credit score.

Build a payment history with a secured credit card

If you’re not at the point where you can have negative information removed from your credit report than consider applying for a secured credit card. A secured credit card functions like an ordinary credit card, with the exception of a security deposit. In order to use one, you will be required to put down a prescribed amount of money as collateral, assuring your creditors that you will pay back any money you use on the card. Once you establish a reliable payment history, you can ask for an unsecured card.

Get negative details removed from your credit report

If your credit score is in poor standing because of collections reporting, you may be able to improve it by paying off the debt that is being pursued by collection agencies and then asking them to remove you from their list of flagged accounts. You can find these types of collections under the public records section of your credit report.

Contact a credit counselling service for help

If you’re done everything within your power to fix your credit score but still need assistance, talking to a credit counsellor may be beneficial. Credit counsellors are professionals who can help devise a plan to get your credit back in good standing. They can advise you on a debt consolidation plan (a plan where you merge all your payments into one monthly payment), provide educational workshops on money management, and help you settle debts with creditors by negotiating a reduced payment amount.

If you’ve damaged your credit and are seeking to rebuild it, following these suggestions will help set you on the right path. Reviving your credit score takes time and patience, so start slowly and do what you can. While there is no magic formula that can swiftly repair a poor credit standing, rebuilding it – even after bankruptcy – can be accomplished.

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