Building strong credit can be difficult. But rebuilding your credit score after a hard financial time can be much more challenging. Financial mistakes like late payments or a high ratio of credit usage to credit availability can stay on your credit score for a long time. Recovering from these mistakes and improving your score takes time. But it also takes some intelligent financial decisions and strategies.
If you’ve suffered a difficult financial time, keep reading to learn some innovative strategies to help you rebuild your credit score.
1. Don’t Miss Another Payment
One of the most important things you can do when rebuilding your credit is never to miss another payment. Whether it’s a student loan payment or a credit card bill, missed payments can significantly impact your credit score. One late or missed payment can stay on your credit report for seven years. The same goes for debts that go to collections.
It’s too late to fix a previous missed payment or a debt that has been sent to collections. But you can prevent additional late payments from impacting your credit score.
2. Lower Your Debt and Avoid Adding to It
Your credit utilization ratio is the percentage of your available credit that you are currently using. This is how much of your credit is available through credit cards, loans, and other revolving credit you use at any time.
Your credit utilization ratio accounts for a large portion of your credit score. Never using more than 30% of your available credit is best. Using more than 30% can hurt your credit score.
If you’re trying to rebuild your credit, in addition to making on-time payments, you should also avoid increasing your credit utilization ratio. If it’s already over 30%, pay down your debt. If you need to make a purchase, use cash or avoid large purchases that will increase your debt.
3. Utilize Smart Financial Tools
In addition to paying your bills on time and lowering your debt or at least avoiding adding to it, there are some intelligent financial tools that you can use to begin to rebuild your credit.
One financial tool that can help you improve your credit is bad credit loans. Loans for bad credit allow you to get a loan to cover unexpected costs to avoid adding to your other forms of debt, such as credit cards. Credit cards often have a very high interest rate. Using these to pay for a big purchase like a wedding, a home repair, or medical bills can leave you spending a lot of interest. You could use this money to lower your debts and improve your financial position.
Personal loans for bad credit are a better option for these large purchases. They still allow you to cover an unexpected or large purchase, even if you’re still working on improving your credit score, without adding to your existing high-interest debts.
Rebuilding Your Credit Score After a Difficult Time
Seeing that your credit score has fallen after a difficult financial time can be discouraging. But these innovative strategies can rebuild your credit and get your finances on track.