Top 10 Ways To Rebuild Your Credit Score After A Rough Patch

Top 10 Ways To Rebuild Your Credit Score After A Rough Patch

Your credit score is a number used by lenders to help them determine how likely it is that you will repay your dues on time if they grant you a credit card or loan.

The higher your scores, the more likely you will secure a loan or obtain a credit card at the most favourable terms, with reasonable interest rates.

If your credit history is not up to the mark, there is no need to panic. Boosting your credit scores demands time, but the sooner you cater to the issues that might be pulling them down, the quicker you will shoot up your credit scores.

10 Ways To Rebuild Your Credit Score

Here are ten ways that you must follow to rebuild your credit score without consuming too much time and ensuring that it stays decent for the upcoming years.

Settle Your Dues On Time

When lenders evaluate your credit report and demand your credit score, they typically are interested in how regular you are with paying your bills. This is because past payment performance is considered a reliable predictor of future performance.

You can positively transform this credit scoring factor by repaying all your dues and bills on time each month. Settling an account for less than what you formerly agreed to pay can adversely affect credit scores.

Keep Expenditures Low on Credit Cards or Other Revolving Credit

The credit utilization ratio is devised by summing all your credit card balances and dividing that figure by your total credit limit.

To determine your average credit utilization ratio, review all your credit card statements from the past 12 months. Sum all the statement balances for each month across all your credit cards and divide it by 12. 

Lenders typically prefer seeing low ratios of 30% or less, and reports that have the best credit scores have exceptionally low credit utilization ratios.

Settle Past-Due Balances

Your payment history accounts for 35% of your credit score, making it the most significant determinant of your credit. The further behind you are on repaying your dues, the more it will degrade your credit score.

Once you have contained new credit card spending, use the savings to catch up on your credit card payments before they get charged off, a situation where the grantor seals the account for future use or sends it to a collections agency.

You can even opt for a personal line of credit, to help you pay off the dues. 

Refrain From Applying For New Credit Cards

As long as you stay in credit repair mode, do not apply for more credit cards. When you apply for new credit, the lender typically performs a hard inquiry, which is essentially an analysis of your credit that surfaces on your credit report and affects your credit score.

The number of credit accounts you recently opened and the number of hard inquiries you incurred both indicate your degree of risk as a borrower. These two factors constitute 10% of your credit score.

Leave Accounts Open

Closing a credit card will not improve your credit score. However, if you wish to close your account, ensure that it will not negatively affect your credit.

It might tempt you to close credit card accounts that have become overdue, but the outstanding sum due will still show up on your credit report until you settle that amount. 

Credit history length accounts for the age of your oldest account, most recent account, and the average age of all accounts. Typically, the longer you let your accounts stay open, the more likely your credit score will rise.

Get In Touch With Your Creditors

While some people might think that this step would be the last on their list, you'd be amazed at the aid you might receive if you get in touch with your credit card issuer. 

Most creditors offer temporary hardship programs that cut down your monthly payments or interest rate until you are in a financially stable position.

If you notify them of the probability that you might miss an upcoming payment, they might even establish a mutually beneficial arrangement. 

Remove Any Incorrect Information On Your Credit Report

Ensure that your credit report is accurate and updated as per your latest financial situation and repayment history. 

You must be careful when applying to receive a copy of your credit report as you could get deceived into paying for services that would be of no benefit to you.

If you notice inaccurate information, report it to the credit bureau promptly to have it corrected and get your scores revised.

Curb Your Debt-To-Income Ratio

Your debt-to-income ratio is a personal finance method that analyses your monthly debt payment to your net income. It helps lenders estimate your ability to manage monthly income and settle debts.

DTI is calculated by dividing your net recurring monthly debt such as auto loan, mortgage, and credit cards by monthly income. 

If you have a low DTI ratio, lenders will view you as someone with a decent balance between the amount of credit that you carry and the amount of income that you receive.

Become an Authorized User

When you become an authorized user of a credit account, the payment history of that account shows up on your credit report. If that payment history is positive, your credit scores could rise quickly.

However, this strategy can also backfire if the account holder fails to pay their bills on time. If the principal account holder does not make timely payments, these late payments will show up on your credit report too.

Know Your Financial Position

Knowing your credit score can help you make smarter overall financial decisions, such as picking credit products that raise credit.

Being mindful of your credit score also allows you to predict with a higher accuracy whether a loan or a credit application will receive approval and if you will receive a lower interest rate when you borrow.

If you are looking for instant money in India, go for lending platforms like Stashfin that helps individuals with small loans and credit requirements.

Final Words

Borrowing money can get inevitable at some point in our lives, and holding a good credit score becomes crucial. Therefore, forming a solid credit history and sustaining a high credit score is essential because of its substantial impact on your overall financial life.

Follow this guide if you have recently gone through a rough patch and wish to boost your credit scores for a stable financial future.