About 25 million Americans have a collections account on their credit score. Thanks to a settlement in 2015 between 31 states and the three major credit bureaus, this number is down from 33 million Americans.
If you are one of the lucky ones, you will have seen an 11 point jump in your score. Why not build on this jump by working to rebuild your credit score?
Most people want to rebuild credit fast, but there is no magic solution to take you from poor to excellent credit overnight. There is a combination of things you can do to see an immediate impact on your score though.
Do these eight tips to start rebuilding your credit score today.
1. Know Where You Stand
The first step in getting your credit score back on track is knowing where you are right now. That way you know how much work you need to do to get to your goal.
Start by getting a free copy of your credit score. Everyone is entitled to get a free copy of their score from the three major credit reporting agencies every 12 months.
Check over each report and look for any possible errors. If you find any, be sure to dispute them. Depending on the error, you might gain a few points back during this process.
If you find a lot of errors in your report, space out your disputes. Send each dispute in its own letter. If you bombard the credit reporting agencies with too many disputes, they may regard your disputes as frivolous.
2. Pay on Time
You need to pay your bills on time. Now that you have your credit report, you know what creditors are going to report your late payments.
This is the biggest influence on your credit score. So if you struggle to remember to pay, automate your payments.
If you have some bills that are already in collections, you missed the boat on this strategy. Focus your efforts on the accounts that are in relatively good standing.
3. Lower Your Debt
The second big influence on your credit score is the amount of credit you currently use. This is called your credit utilization.
This number is the percentage of your total revolving account balance as compared to your available credit. Revolving accounts are those like your credit cards.
To find your credit utilization percentage add up the total balances on all of your credit cards. Then divide it by the sum of the limits on all of the cards. Now multiply by 100.
Make it your goal to get this percentage below 30%. The lower the better really.
4. Get a Secured Credit Card
If your current credit cards have been closed, then you may have no credit cards with which you can make monthly payments. In this case, you’ll need to start over.
A secured credit card will require you to make a down payment. This payment will serve as security for your credit limit.
Only choose a card where the issuer will report your on-time payments. Otherwise, the card won’t help you build credit.
Also, look for a card that will grow with you. As you make on-time payments, the issuer will increase your credit limit. This will help with your credit utilization ratio.
5. Credit Building Loans
We know it sounds counter-intuitive, but a credit building loan will help you improve your credit score. Check your local bank or credit union; they are most likely to offer them.
You will need to become a customer or member if you aren’t already. Then show that you have an income that will allow you to make payments.
Make all of your payments on time so that you build your credit. Once you pay the loan in full, the money will release to you.
6. Find a Co-Signer
You may find that your credit prevents you from getting access to credit. If this is the case, you can ask someone to co-sign for you.
This means that they are promising to pay your creditor if you fail to make payment. Just know that if you fail to make payments, your co-signer’s credit score could also drop. Don’t do this to someone you care about.
Bad credit can also affect things beyond getting access to credit. If you’ve been denied an apartment or home for rent you may be wondering how to secure shelter.
A co-signer can help you secure housing that you wouldn’t otherwise qualify for.
7. Be an Authorized User
If you can’t secure credit on your own, you may need to become an authorized user on someone else’s account. To protect them, some cards will let the main holder place a spending limit on you.
If this isn’t possible, they could add you purely in name. You wouldn’t have access to a card or the information.
This shouldn’t be your first course of action though. Because you are not legally liable for the debt, there won’t be a big impact on your credit score.
You also run the risk of your credit score getting dinged if the main cardholder doesn’t pay the bill on time. So if you do go this route, make sure the person you ask has good money habits.
Rebuild Credit Fast with These Steps
There is no magic way to snap your fingers and rebuild credit fast. What you can do is take multiple steps at the same time to have a compounding effect on your score.
Whatever you do, stay your course of action for a few months. It takes about 30 days for any action’s effects to show up on your credit score.
Within six months you should see a noticeable rise in your score. After a year you should make good progress.
Check out our blog for more advice on how to get out of debt and live financially free.