8 Proven Strategies to Rebuild Your Credit

Quick Summary

Bad credit could hamper our chance of qualifying for a credit card application, mortgage, auto loan, or getting good interest rates. The good thing is that even though you’ve made financial missteps in the past, you can take steps to rebuild a more positive credit history.

Rebuilding your credit will indeed never be an easy process. However, if done correctly; it will make your financial situation easier and less costly. Fortunately, there are strategies you can follow in rebuilding your credit starting today and improving your credit going forward.

How Credit Rating is Calculated in Canada?

To start with this challenging process, you have to determine your starting point. Ask yourself this question: how bad is my credit history? The length of the process could vary depending on how low the credit rating has become. These are the factors that can affect your credit rating:

  • Payment History – having a positive payment history comes right down to the on-time and up-to-date payment.
  • Credit Utilization Ratio – also known as a balance-to-limit ratio where one must aim for a credit balance of 30 to 50% in order to obtain a higher credit rating.
  • Multiple Requests to Obtain Credit – The more you apply for different loans and credit cards, an increase of line credits, the more creditors think you are experiencing financial difficulties and payment struggles.
  • Age of Credit – The older the credit accounts, the longer its credit history therefore, it is easier to rate; if you are a good payer or not.
  • Level of Delinquency – Red flags arise on the creditor’s side. For example, they have to send your file to a collection agency due to payment negligence.

1 Check Your Credit Report

First, you have to obtain a copy of your credit report. Each person is entitled to one free copy annually from annualcreditreport.com.

So, from there you can easily identify and manage the areas affecting your credit score that need improvement. Specifies late and missed payments are how you utilize your credit versus your limit and even more serious cases such as bankruptcy.

You could also discern whether errors exist or not. It could be hard to believe, but it’s not impossible to have inaccuracies in your credit report you must take measures to improve your credit score.

2 Make Arrangements to Bring Your Accounts Up to date and Pay Down Debts

Secondly, consider taking action regarding your accounts being up-to-date and have lesser debts. While it is difficult to pay a pile of debts, it is vital to start reducing them.

In addition to that, the greatest contributing factor to a good credit score is how you’ve been behind on your payments. Your credit situation will not improve unless you get your accounts up-to-date by paying your credit on time and avoiding late payments.

Another important factor to consider is your credit utilization ratio. The amount of your credit you have in relation to the available credit you have should be at 50% or below.

3 Get a Secured Credit Card

When having credit card accounts closed due to payment failure or poor credit, one of the best ways to regain your good credit history is having to get a secured credit card. Unlike other credit cards, this requires a security deposit of around $300-$500 which will serve as collateral.

Getting a secured credit card will help you build a consistent payment history. This is an important part of building your credit because it could demonstrate that you can pay your credit and it could prove that you can responsibly manage it.

4 Limit Your Applications or Credit Checks

Although it is normal, applying for credit from time to time could also significantly affect your credit score. It is recorded to your credit report as an inquiry which is also better known as a credit check.

Having too many credit checks in your credit report might give the wrong impression to lenders. They might think you are urgently seeking credit to ease your financial status, or you are trying to live beyond your means. Either of these has a negative impact on your credit health.

Be that as it may, you have to be mindful of harmful inquiries. These inquiries are referred to as hard inquiries which include multiple applications for a credit card, loans, rental, and even employment. While there are harmful inquiries, there are also harmless inquiries which are also known as soft inquiries like credit report requests.

5 Pay At least the Minimum by the Due Date

As you work towards rebuilding your credit, it is essential that you make on-time payments. Be it your credit card bills, utility bills, or parking tickets, all can get reported to the credit bureaus. At the very least you want to avoid missing payments and pay at least the minimum payment by the due date.

In addition to that, you also want to ensure that it is consistently happening every payment. For you to be able to do that successfully, you have to set up reminders wherever you feel more convenient for instance, on your phone, desk calendar, or your desktop computer.

Moreover, if you are a pre-occupied person just like the majority, you could also make the payment automated to save your time and save you from missing it.

6 Ask for Help from Family and Friends

Your family and friend may willingly help you rebuild your credit. You can ask them if they can agree to become an authorized user or a co-signer of their accounts. However, you have to be mindful that this could be a huge favor to ask. You’re asking the person to put his or her credit reputation on the line for you. So, you have to take full responsibility for whatever credit activity you will do.

On the other hand, being an authorized user could also negatively affects your score if the person handling the account has a bad credit habit.

7 Seek Professional Help

If you are having a hard time using these strategies, you still have an option to seek help from financial experts that offers the following services:

  • Credit Counseling – A financial plan to better supervise your debt can be created with the help of a credit counselor or best financial advisors.
  • Debt Repayment Plan – This personal payoff plan focuses on how to eliminate your debt. You can enroll in a debt payment plan to pay off specific types of debt in the most efficient way possible.
  • Debt Consolidation Loan – This can help you reduce the amount of interest you pay each month by trimming the total amount you pay every month and simplifying your bill into one.

8 Adopt Good Financial Habits

Last but definitely not least, adopt and consistently exercise good financial habits to rebuild your credit. While you are in the process of fixing your financial backlogs, you may also want to develop smart spending and saving habits to rebuild your credit score.

One beneficial thing to do is to create a budget based on your actual earnings and spending; be consistently on top of it. Your budget is your spending plan which will help you live within your means and manage your money better. Say goodbye to the days when you overspend and continue to have a huge pile of debt.

Having a budget that you need to follow, you will be able to focus your money on areas that are most important. Once you are developing a budget, be mindful of all the payment dates so you’ll never miss or make a late payment.

Final Thoughts

If you have reached this point in this article, you are indeed struggling. Rebuilding your credit could take time and patience. On the plus side, bad credit will eventually fade into the past if you strictly follow these tips.

If you are looking for a sign, here it is: Start rebuilding your credit today.

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