4 Proven Strategies to Rebuild Your Credit

You should rebuild your credit if it is low before making any new major purchase. If you are considering taking a home or car loan, it is important to rebuild your credit before you approach the lender. If you do not take the time to rebuild your credit before moving forward, your future loans will end up costing you far more than they should. 

Use Your Credit Card

You have to use your credit to build your credit. If you have a credit card, simply not using the card will not help you to rebuild your credit. Lenders need to see you can use your credit responsibly; not using it at all does not show them this. Consider making purchases on the card instead of in cash. Then, each month, assure you are making monthly credit card payments, hopefully in an amount greater than the minimum required. Making your payments on time each month leads to multiple positive marks on your credit report. Each successful payment is recorded. 

Reduce Your Balances

Instead of settling for making monthly payments on your loans, start paying down some of your balances. It is smart to pay down the balances on the credit lines and loans with the highest interest rates. The loans with low interest rates should be low priority because it is less expensive to hold a balance on these cards and credit lines. Aim to have less than 10% of your total available credit in use each month. When you reduce your balance, you will see your credit score start to creep up. If you can pay off a small loan, even if it does have a low interest rate, make this a priority. Paying down a loan entirely will significantly raise your score. 

Elect Different Lines of Credit

Once you have lowered the amount of total debt you have, it is important to keep using your credit to take on smart debt. Smart debt means you have a balance of both revolving and installment loans, are seeking low interest rates, and are keeping your balances low. Again, it is not enough to just have credit. Using credit is what pushes you to the next level. When you have bad credit, you may have to settle for smaller lines of credit. Your performance on these small lines will dictate whether or not you can get larger loans in the future.

Take Out Personal Loans

Taking out a personal loan before you seek a car or mortgage loan can boost your credit and save you money on that bigger loan. Personal loans are typically unsecured, short-term, high interest loans. While they are expensive, you will likely remake the money you spend on the loan with the money you save on your next. A personal loan can be used for any purchase. It is not uncommon for smart borrowers to take the loans, invest them, and pay them off with the interest earned on the investment. If you can do this, you will see the cost of the loan is very low and the rewards are very high. 

 


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