How to rebuild credit? Rebuilding your credit score is a process that requires a lot of effort and patience. However, if you know six easy and effective ways from Hanfincal, you can boost your journey faster and smoother. Keep reading to explore what they are.
1. What factor affects your credit score?
Here are 6 primary factors influence your credit score:
- Payment history: Payment history accounts for 35% of your FICO score and is the most important factor in credit scoring; even one missed payment can lower your score.
- Money owed: The next most important factor in your credit scores is your credit usage, specifically as represented by your credit utilization ratio. Using more than 30% of your available credit is frowned upon by creditors. Credit utilization constitutes 30% of your FICO score.
- Credit history duration: The length of time you’ve had credit cards accounts for 15% of your FICO score. Your credit scores will rise as your credit history grows longer.
- Recent inquiries: The number of credit accounts you’ve opened in the last year accounts for 10% of your FICO score. Too many accounts or inquiries can indicate increased risk, and as a result, your credit score will suffer.
- Credit mix: People with excellent credit tend to have a diverse portfolio of credit accounts. Your credit mix accounts for 10% of your FICO score.
- Public records: Bankruptcies and civil judgments are examples of public records.
2. How to rebuild credit fast?
There are 6 ways to rebuild credit fast below:
2.1. Check credit reports and dispute errors
Checking your credit reports is the very first thing you should do to rebuild your credit fast. Experts recommend that you check your statements at least once a year to stay on top of things. Getting your three credit reports from TransUnion, Equifax, and Experian is best to assess your current credit situation.
You can go to AnnualCreditReport.com and download a free report from each credit bureau once every 12 months. Due to the COVID-19 pandemic, you can get free weekly credit reports until April 2021.
Make a list of any errors in the information you find as you review your credit reports. This suspicious information or mistakes that do not belong to you or contain incorrect account details are lowering your score. You’ll need these details to file a dispute with the credit reporting company and complete the next steps in your credit improvement journey.
2.2. Pay bills on time
Payment history is the most critical factor and accounts for 35% of your FICO credit score; therefore, you must pay all of your bills on time. With just one bill late, your credit score suffers significantly. Paying only the bare minimum is acceptable if that is all you have.
Late payments can remain on your credit reports for up to seven years, making them more challenging to overcome than other credit mistakes. If some bills have already been sent to collections, prioritize those for which your account is still open.
2.3. Keep your credit utilization low
Your credit utilization ratio is another important factor in your credit score. Keep this rate as low as possible; 30% is acceptable, but less than that is preferable. In the eyes of lenders, maxing out your credit raises a red flag and reduces your creditworthiness. You are more likely to fall into debt pile up, so creditors dislike seeing credit accounts that appear to be maxed out.
You can lower your credit utilization ratio by doing the following:
- Maintaining low or zero credit card balances.
- Getting rid of credit card debt.
- When closing accounts, exercise caution. When you close an account, you reduce the amount of credit available, affecting your credit utilization ratio.
2.4. Get a secured credit card
If you have a poor score or have had credit card accounts closed, you are more likely to be denied a regular credit card. In this case, getting a secured credit card is the long-term solution for easily rebuilding your credit. These cards require an initial deposit. That deposit is usually your credit limit, but they function similarly to any other credit card.
Another way to quickly rebuild your credit is to become an authorized user. What exactly does this mean? You can request that someone with good credit add you as an authorized user on their credit card. Your credit improves simply by having the account; you do not need to make any charges or access the account. Therefore, the impact on your score may be minor because you are not legally liable for the account’s debts. Furthermore, being an authorized user can harm your credit score if the account holder fails to pay the bill on time, so someone with good credit habits is the best option this time.
2.6. Apply for a credit card occasionally
Finally, applying for a new credit card too frequently can help you rebuild your credit. A hard inquiry occurs once you apply for a new card, which lowers your credit score. As a result, opening new credit regularly is bad for your credit score.
A hard credit inquiry can hurt your credit score. Credit inquiries stay on your credit report for 24 months, but they have a 12-month impact on your credit score. Please keep in mind that only applying for new credit when necessary, and try not to open too many cards in a short period.
Find out how often you should apply for a credit card to ensure you understand the best time to apply for a new card.
3. How long does it take to rebuild credit?
It usually takes one to two years to rebuild your credit after a major setback. It’s possible to raise your credit score in 30 days or less, but don’t expect to go from fair to excellent in that time.
As a result, the impact on your credit score and the time it takes to recover is affected by how serious the error was and how recent it was. Late and missed payments, judgments, and collections are all reported to credit bureaus for seven years. Bankruptcy can last up to ten years.
Have you found the correct answer to this question: How to rebuild credit fast? 6 easy and practical ways Hanfincal gives you will boost your rebuilding journey more quickly. Let’s keep in touch with us and share your experience about the most suitable choice for you.