How to Rebuild Credit

How to Rebuild Credit Fast

How to Rebuild Credit

How to Rebuild Credit Fast? The secret is…

 

Let’s be perfectly clear. You are reading this because I want you to. I want you to learn how to Rebuild your credit and never have problems with your credit ever again.

 

 

 

My name is Randal Lyon, I am Financial Educator and Personal Finance Blogger. I am NOT a financial advisor or estate planner. If you need those services, please ask a few friends who they recommend and seek out those professionals.

 

 

If you want to learn how to repair your credit and never have credit issues again, this post is for you.

 

 

I recommend checking out the following ultimate guide to Credit Repair. There are many proven methods and factors to improve your credit score. I have assembled the best ideas and proven methods to save you time searching the interest for hours.

 

 

Randal’s Ultimate Guide to Credit Repair

Let’s begin with What exactly is a credit score, and how is it created?

 

What is a Credit Score?

A credit score measures your risk level based on factors like payment history, the amount owed, length of credit history, and the number of open accounts you have.

 

Major credit bureaus like Equifax, Experian, TransUnion, and Innovis (formerly Dun & Bradstreet) each provide their version of a consumer’s credit history.

Your Credit Report, also called Credit History contains three main sections.

 

Three Pillars of your Credit Score are;

  • Payment History
  • Credit Utilization Ratio
  • How long have you been using Credit and paying bills on time?

 

These “three pillars” can determine whether you’ll qualify for a loan, rent an apartment, or even buy a car.

 

The third pillar is the most important because it tells lenders about your recent financial behavior, including late payments, missed payments, and collections accounts.

 

Myths About Credit Scores

A low credit score isn’t the worst thing that can happen. These 5 myths about credit scores might make you think otherwise.

 

Here are a few common misconceptions about credit scores and the facts behind each one.

 

1. You’re Not Getting a Good Loan Deal If You Have a Low Score

 

If you have been rejected for a mortgage because of a poor credit score, don’t panic. While having a good to excellent score will certainly help you secure a mortgage, dont give up.

 

Your low credit score might be poor due to late payments, missed bill payments, bankruptcy, and even having too many open credit accounts.

 

Have a look at your credit history. Then, start working on improving what you can. There are ways to improve your score quickly.

 

2. Your credit score is partly based on how long you have been using credit.

 

Your credit score is calculated based on how long you’ve had credit cards, loans, mortgages, auto loans, and whether you pay those debts on time.

 

If you are rebuilding your credit from scratch, you can improve your score by applying for a secured credit card. This method will quickly boost your credit, showing lenders that you know how to use credit responsibly.

 

3. You Can Boost Your Score By Paying Off Debt

 

While it’s true that paying off debt can help improve your score, it doesn’t necessarily do anything for your score immediately. It can take weeks or even months to impact your credit reports. Patience and Persistence are required.

 

My personal experience is that credit reports tend to report the bad news quickly and update the good information more slowly.

 

For example, when I had major home repairs and temporarily put it on a card, it immediately impacted my score as it increased my credit usage ratio. Then when I paid the card in full after carrying a balance for not more than two months, my report showed the old balance for several months. And when it finally was updated, my score bumped up to better than ever.

 

Patience is a requirement, and you may need to contact the credit agency and have old information removed or updated.

 

4. Increasing your Credit Limit Will Improve your Score (but not Fast)

 

A high credit limit will increase your available credit and lower your credit/debit ratio.

 

Banks and other lending institutions set credit limits based on their risk tolerance. So, for example, if you apply for a $5,000 line of credit, they may give you only $2,500.

 

Lending institutions are very conservative when taking on risks. The higher you appear as a risk, the less likely you will receive a line of credit or a higher credit limit. And this makes sense, as they don’t want to see you default on your loan. It’s bad business for them. And certainly not great for you.

 

Regardless, asking for an increased credit limit may not impact your credit score in the short term.

 

5. You Should Use All of Your Available Credit, then pay it all off.

 

It would be best to use only as much of your available credit as you need at any given moment, keeping your credit utilization ratio in check.

 

Meaning dont use credit any more than you absolutely must. Loans for larger purchases are standard. However, purchasing furniture and appliances on a high-interest in-store loan is not a great way to manage your credit effectively.

 

Running up your credit cards to the limit is a red flag for lenders. This will impact your credit usage ratio negatively, lowering your score.

 

And while paying it all off quickly can reduce that risk, it can take time to show up on your credit history. So Caution on this method. In the short term can do more damage than good.

 

The exception to this is, using a secured credit card. (See section below “Rebuild your credit score with secured credit cards.”)

 

 

What are hard credit inquiries?

 

A hard credit inquiry (also known as a hard credit check or hard pull) occurs when a consumer applies for a new product like a home equity loan, car loan, or credit card. Typically, lenders run a background check to ensure the person isn’t delinquent on existing debt.

Hard credit checks are one of your credit report’s most common negative items. These include collections accounts, bankruptcies, tax liens, judgments, wage garnishments, foreclosures, utility shutoffs, bank account closures, and medical debts.

There are some exceptions when Hard Credit Checks are not harmful. For example, if a lender runs a hard Credit Check simply to determine if a borrower is eligible for a particular product, this won’t hurt his or her credit score. If it does, it is often temporary.

 

How Do Hard Inquiries Affect Your Credit Score?

 

The impact of a hard inquiry depends on several factors, including the type of debt, how old it is, whether there is a judgment against you, and what your payment history has been like since the inquiry.

 

For example, if you had a collection account and paid it off three months ago, the inquiry won’t hurt your credit score too severely. However, if you missed multiple payments and filed for bankruptcy, the inquiry could lower your score by 50 or 100 points or more and stay on your report for 7 years or more. (you can ask to have these comments removed after 7 years).

 

How Long Does a Hard Inquiry Last?

 

A negative remark on your hard credit report can often remain for up to 10 or even 20 years if you don’t manage your credit information.

 

 

If you see negative hard credit checks on your report that are more than seven years old, you should contact your credit reporting firm and have them removed if possible.

This inquiry occurs when someone applies for credit, such as a mortgage or auto loan. Looking at your credit reports, you can find out what types of inquiries are counted toward your score. If you see one of these inquiries, it could affect how long it takes to build up enough points to qualify for a lower interest rate on a home loan or car loan.

 

What is a soft credit check?

 

Soft credit checks, also known as soft pulls, or soft credit inquiries, do not show up on your report and won’t impact your credit score. A soft credit check occurs when someone runs a background check on you.

 

 

Soft credit checks can happen for various reasons, including applying for a mortgage, opening a bank account, or applying for a credit card.

Credit apps typically use a soft credit check to display your credit data on your account within the app. And as mentioned, this does NOT impact your score.

 

How to Rebuild Your Credit Score Fast (Credit Repair 101)

 

Having a good credit score will give you access to lower interest rates on your loans, like auto financing and mortgages. But how do you get there quickly?

 

Here are some quick tips for credit repair and how to improve your credit score:

 

These tips assume you receive adequate income to cover your regular bills and credit card minimum payments.

 

  • Paying bills on time – This is one of the most important things you can do to improve your credit score. It will take longer to repair your credit history if you pay late fees and interest charges. Make sure you pay your bills on time every month. Put reminders on your phone for 7-10 days before the due date. (allows for processing times of payments. Don’t make a payment the day before it’s due. It can be reported as a late payment. Don’t take the risk. Keep on top of monthly bills and have them paid in advance.

 

  • Start a Budget – Tracking your spending helps you understand where your money goes. When you know what you spend your money on, you can cut out unnecessary expenses and save money for that goal. And look at this, update it at least twice a month. Don’t just create it and then forget about it. Use it as a tool to keep you focused on your financial goals. You can do this easily in google sheets (Free).

 

  • Monitor your credit score – Checking your credit score regularly will let you know if anything needs fixing. Credit monitoring monthly gives you a feeling of accomplishment.

 

  • Pay Down Debt Early – The longer you wait to pay off a debt, the bigger the balance becomes. And the more significant the balance, the harder it is to make payments without incurring late fees or even defaulting on the account. If you fall behind, those negative marks will remain on your credit report for seven-plus years.

 

  • Set up Automatic payments for your credit card payments and Utility Bill payments – If you struggle to keep track of all your bills, and forget to make payments on time, consider setting automatic payments from your Banking app. Calculate your monthly interest +minimum payment. Use that as your minimum monthly payment. Be sure to set it up about 7-10 days before payment to allow for processing times.

 

  • Rebuild your credit score with a secured credit card. The purpose of a secured card is to help people rebuild their credit scores. They require an initial deposit, typically under $500.00, refunded when your credit score reaches a good limit. This means you won’t incur any interest until you’ve repaid the full amount. Use the unsecured card for everything, from regular bills to groceries. Then pay it off in full each month, or even twice throughout the month. This will increase your credit score surprisingly fast.

 

Raise your credit score by 100 points in 30 days.

 

 

People ask, “How to raise my credit score by 100 points within 30 days”?

 

This might not be possible, but it never hurts to try. Try starting with the following steps;

  1. pull your credit history and see if anything needs to be updated.
  2. contact your credit provider, update incorrect information and remove any negative information older than seven years.
  3. Pay off ALL outstanding debts and credit cards with small balances (under $3000.00, for example), or if possible, all Credit Card Balances. This will boost your credit/debt ratio. While this will help, it often doesn’t show up for 30-60 days.
  4. If you are recovering from bankruptcy and have just been released, a secured credit card is probably the fastest way. Contact a credit card company, tell them your situation, and ask to set up a secure card. They will issue you a 500.00 prepaid card. You will need to send them $500.00 by bank transfer or their preferred method.

 

Start to use that card for all your expenses, and pay it off twice a month in full. This will definitely start to boost your credit rating.

Reality Check. Repairing credit is not a quick process, so 30 days may be an unrealistic expectation.

Instead of looking for a quick fix, adjust your thinking for long-term financial health.

Create a budget, determine what to cut out of your expenses, and apply that “found money” to pay down outstanding and high-interest debts.

This may take 3-6 months to show up as a 100 pt bump.

 

What if you dont have enough monthly income to pay off your bills and credit cards monthly?

 

  • You should never take out a payday loan unless you absolutely must. Payday lenders charge extremely high-interest rates, often over 400%. The simple rule is to avoid these crooks. They are simply taking advantage of you.
  • You can also use a cash advance loan to cover short-term expenses. Cash advances are not considered good long-term financial planning because they also carry very high rates.
  • The first thing you must do is create a simple budget. You need to know exactly where every penny is going. You probably have some expense bad habits that need to be addressed. Cut back or eliminate those. Monthly subscriptions, expensive cable plans, and phone plans all need to go. You need to go into financial lockdown. Nothing goes out that is not planned for. Keep those bills paid and up to date.
  • Cut back on everything in advance if you know you will have reduced hours or possibly be laid off for the season. The sooner you can reduce spending, the better. Saying to yourself that it will all work out will not help. Face reality and implement a plan immediately. Denial is the worst possible action you can take.
  • A Consolidation loan might be the best to bring things back within your monthly limits. Have an early conversion with your bank about combining high-interest credit card debts into one manageable loan.
  • Use a personal loan to pay off high-interest debt. A personal loan is an unsecured loan that allows you to borrow money based on your income and assets.
  • Refinance your mortgage – If you’re having trouble paying down your debts, Consider using the equity in your home. Refinancing your loans with a home equity line of credit (HELOC) might be a way to get things back under control.
  • Always speak to a financial professional and seek the best solution for your specific requirements.
  • The Side Hustle. You will probably need to find more income to make any quick gains in reducing your debt. A side hustles these days is a must. There are a lot of tax benefits from starting a home business. An old saying is very applicable to the home-based business side hustle. it’s not how much you make but how much you keep. Here are a few tips when looking for a side hustle.

 

  • Avoid MLMs; these are great for meeting entrepreneur-minded people but are always very hard work, and rarely does anyone make life-changing money.
    • Like MLM’s, Make money online businesses, sell you a dream. And yes, it is possible but only with a lot of time invested. Time is a precious commodity, so dont waste it working for someone else’s gain. You need to focus on building your personal brand and your own business. Build something that you control and can set the rules.
    • Of all the online businesses, here are a few to consider. (link to MMO article)
    • And you will be surprised how many owner-financed business opportunities are available. You could buy yourself a business that is cash flowing, then another, and another. It is much easier than you think, so don’t limit your thinking to always having a 9-5 job at low pay. Start researching what is available locally.

 

Planning, Patience, and Discipline will keep you out of Financial Trouble.

 

Unsurprisingly, many high-interest furniture and appliance loans end up in collections. Primarily due to impulse buying and not having a proper budget in place.

 

The following scene occurs in furniture, appliance, and technology stores regularly.

 

Someone in the family says, “It’s on Sale. Let’s do it and buy this now”. (aka Impulse buying).

But unfortunately, they can’t afford to pay cash for the purchase and opt for a high-interest in-store financing loan.

Twelve to Eighteen months later, the family dynamics or income changes, and they default on the loan.

 

They have been paying only minimum interest payments and barely anything on principle.

Next thing you know, this bill has been sent to collections; it has destroyed this family’s good credit rating. The calls are relentless, and they no longer answer the phone.

 

This family is then forced to seek professional financial counseling and/or file for bankruptcy protection.

The above family could have saved themselves all this pain and suffering by simply understanding what they can afford and can not. We call this a budget and financial discipline.

 

Sadly these skills are not taught to us by our parents and are not taught in high school.

 

What the above family didn’t know was, Not having the cash right now didn’t mean they could not have the desired purchase. It just means this family can’t afford it right now.

 

Alternatively, The financially responsible family will go home, look at the family budget, and begin planning and saving for the purchase. Yes, they miss out on the sale, but a funny thing about sales is they always have them.

 

And even if they don’t, you can often negotiate a price close to the old sale price. You just need to learn the art of the haggle.

A proper budget and a savings plan could have saved the first family in this example from a financial disaster.

 

What can you learn from this example?

 

If you are considering financing through the store, you can’t afford it now.

You could start putting money into a saving account or use the envelope system and start cash stuffing into an envelope until you reach your target amount.

 

If this means cutting back on your expensive coffee and fewer visits to the fast food drive-thru’s, then you know you are on the right track and becoming a more financially responsible adult.

A bad credit score doesn’t mean you’re doomed to live paycheck to paycheck forever.

 

There are ways to tackle credit repair and rebuild your credit fast.

 

Begin with;

  • a personal finance plan
  • creating a working budget
  • setup automatic payments to ensure no late payments moving forward
  • sticking to that budget
  • Monitor your outstanding balances, pay off the smallest priority debt first, then the next, and so on.
  • Usage of secured cards responsibly.
  • Becoming very disciplined with your savings and bill payments
  • An overall adjustment to spending habits, aka, no more impulse buying.
  • And financial patience, credit repair, and relearning personal finance will take some time.

 

A common reason for falling behind on payments, poor credit score, and insufficient money left over to pay for things at month’s end is due to a lack of a working budget and a long-term financial plan.

 

So get that done immediately.  Make it a priority in your life.

 

The Secret to rebuilding your credit is just to have a plan. No real secret at all. Most of us are not taking this simple action of creating a personal financial plan. Those of us that do then tend not to stick with it. It is a living document that you need to create and modify as your life changes. And you must stick with and stay focused on the goal. And know that you will get there. Remember, hitting a target is easier if you know where it is.

 

Please share this post with your friends and family if you find it helpful.

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