Rebuilding your credit: it’s easier than you might think
Credit scores ebb and flow, almost from day to day. Usually it’s only a few points here and there, but major purchases or life changes can also create radical fluctuations in your credit. It is important to remember that credit can always be rebuilt, so a sudden drop is not the end of the world.
It’s always best to start building your credit the right way, and bankruptcy can definitely cripple your credit, but you’ll be happy to know that rebuilding your credit is really quite simple. There are countless sites with endless recommendations, so we’ve compiled some of the best for you
1. Always pay your bills on time.
It’s surprising how often Americans pay their bills late, even by a couple of days. Life happens, so it can be easy to let something as simple as this slip your mind.
What most American’s don’t know, however, is that payment history accounts for nearly 35% of your credit score.
While it can be difficult to schedule time to pay your bills each month, if you have the means to set up automatic payments, that is always the number one way to go. If money is tight, set aside a “bill-pay night” in which you pay all of your monthly bills, and stick to your schedule.
2. Piggyback on someone else
This is almost cheating, but when it comes to financial stability you should take advantage of every opportunity you can. So if you have a friend or relative with good credit, have them add you to one of their accounts, but never give you access.
By doing so, your credit score will be tied to their credit usage (so make sure you pick someone responsible and trustworthy!), and as they use their credit, you’ll reap the rewards. Since you don’t have a card of your own (or access to the account), you won’t run the risk of ruining your (and their) credit.
3. Get a credit card
The right credit card.
A cheap credit card.
The biggest cause of bad debt is simple: people borrow (or spend) more money than they can afford, and they get in over their head. Having a credit card is essential for developing a solid credit history and score, which seems like a Catch-22, but you can beat the system.
With a low-balance credit card (or a limited card, like a store credit card that can only be used at that store), you establish a credit history but the low limit helps keep you from getting in over your head.
4. Spend money…a little bit
Opinions differ on how much is “the right amount” of debt to carry, but the consensus is that the most you want to have is 30% of your total limit.
Your debt-to-income ratio (DTI) is a big influence on your overall credit score, and while you have little to no control over your rent or mortgage, or your car payment, you can control how much you spend on credit. So spend, but spend minimally, and wisely.
5. Get more credit
(This should really be a “4a,” since it relates to the above tip, but we’re going to give it its own entry.)
You can easily adjust your (DTI) in your favor by raising your credit limit. If you have a solid payment history with your credit card company, they will often overlook your credit score because of your record with them. A simple phone call can see your credit limit jump significantly, which lowers your overall DTI and raises your credit score.
These are just a few simple ways to shift your score in your favor. Credit is a complicated business, and companies do whatever they can to tip the scales in their favor. Take control of your score, and take control of your finances. h2