It takes years to build a positive credit history but just a single financial mistake to destroy it. If some past financial mistakes have tarnished your credit profile then you may find it difficult to get loans in future. Even if some lenders offer you loan, they will charge a premium on interest rates for the greater amount of risk they are exposing themselves to. You may have to settle for less than desirable loan terms that may cost you a lot during the loan tenure. You cannot go back in time and change what you have already done, neither can you delete the accurate negative items from your credit report. But you can certainly work to improve the credit profile. Here are 9 tips that will help you rebuild the credit.
To begin your journey towards positive credit, you need to first know where you stand today. Order credit report and credit score to know your current financial situation. Set a goal of what score your wish to achieve. Check what items are bringing your score down. Is it late payments, missed payments, or high credit card balances? A careful analysis of the credit report will help you ascertain whether you need to restructure your finances drastically, or whether being a little careful and responsible in the future will help you raise your credit score.
According to the reports 70% of credit reports have some inaccurate information. If you do not want to get penalized for mistakes you didn’t do, you must check your report to be sure that everything is accurately recorded. Any discrepancy or inaccurate information might be a reason for low credit score. Immediately report it to the bureau to get it corrected.
If you have racked up huge credit card balances, then this is the first debt that needs your attention. Cut down on your expenses and pay down this outstanding amount as soon as you can. It not only spoils the credit utilization ratio but also attracts a very high rate of interest. Once you have taken care of your credit card debts move on to other payments that are overdue. You need to bring all your accounts up to date. If you cannot pay everything in one go then work out a payment plan with your creditors or consult an agency that can negotiate on your behalf.
Consistent on time payments is the mantra for a good credit profile. So if you wish to fix your bad credit, the one thing that you need to be serious about from now on is to pay all your EMIs and credit card bills on time. Use calendars and set reminders to make sure you never miss a payment. Running behind schedule will bring down your credit score and prevent you from reaching your goal.
Keep a check on your spending and do not max out the credit cards. Pay off your credit card balance in full each month when you are trying to rebuild credit. This will keep a check on the utilization levels and help in raising your credit score.
You need to take credit and prove to the lenders that you can handle your debts responsibly. But since bad credit will make it difficult for you to secure loan, you need to look for other options. You may avail for a loan for low CIBIL score and then repay it diligently to build positive credit history.
If your credit is in very bad shape, it may not be so easy to secure even a loan for low CIBIL score. The lenders might be willing to lend only at exceptionally high interest rates which may not be feasible. In such a case you can apply for a secured credit card. Approval for this card doesn’t require any CIBIL score check. An initial deposit amount made by you serves as collateral and determines the limit for your card. The activities on this card are reported to the bureau. So you can charge a small amount every month to this card and repay it in full at the end of the billing cycle. This will help in building a positive payment history. After an year or so, you may request for an upgrade to an unsecured credit card.
Avoid closing old credit card accounts even if you don’t use them. They increase the average age of the accounts and help increase credit score. Closing them will reduce the length of the credit history and hurt the credit.
Take professional help of credit repair agencies that will help you create a financial plan to manage your credit in a better way.
These tips will certainly help you bounce back from a bad credit situation and rebuild your financial profile. Create a plan and have patience, because the effect of your efforts will not show up in a few days. Depending on how bad the credit situation is, it may take 2-3 year before you can see a drastic improvement in your credit.
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