Bad Credit Rehab: Your Complete Guide to Effectively Rebuilding Credit

Dealing with credit issues? Thankfully, it’s not a life sentence. Read on for some super effective tips on rebuilding credit.

One-third of Americans will be denied loan approval due to a low credit score.

A credit score can make or break your life in some respects. With a good score, it’s much easier to secure a loan, get a mortgage or vehicle, or in some cases, hold a successful job.

But when your credit is score takes a hit, is there any way to recover? Rebuilding credit isn’t always easy, but it’s not impossible. In this article, we’ll explore different ways to get you out of the red back in the green.

What is Bad Credit Anyway?

If you’re wondering what counts as ‘bad credit,’ here’s a list of all the scores and their ranks:

300-579: Very Poor

580-669: Fair

670-739: Good

740-799: Very Good

800-850: Excellent

Each of these numbers fluctuates slightly depending on the company, but this is a consensus of ranks.

7 Steps to Rebuilding Credit

Repairing your credit doesn’t happen immediately. Sometimes it can take several months or years to see a higher number, depending on the type of damage done. Late payments are stuck on your report for seven years, but bankruptcy is a solid ten years.

But it’s completely doable to rebuild your credit score.

Check Score Often

Checking your score is vital to the health of your credit. Your score tells you what is essentially hurting your score and what’s helping it. Most of the time, a credit report is completely free.

For example, on your score, you can view your missed payments, notifications, and if there’s any fraudulent activity or cases of identity theft. In that case, you’d be able to catch a mistake and make a dispute.

Knowing where you stand is also important, so you know the steps you need to take to improve.

Pay Bills on Time

Timely payments are one of the most significant factors that impact your score.

When payments are not paid on time, they go to collections, and this hurts your score dramatically. Also, you run the risk of paying late fees and accruing balances, which could make the payments next month even more stressful.

If paying your bills on time is a challenge, consider signing up for automatic payments. These payments are deducted on a specific date, so they’re always on time without you having to remember.

Apply For A Secured Credit Card

With a low credit score, it’s often hard to get a loan or credit card when you need one. A secured credit card, such as the Fingerhut Credit Card, works the same way as a traditional credit card, except it uses collateral with the money you pay upfront. They report any payments or delinquencies to the credit bureaus, so this is an excellent way to rebuild credit.

Seek Help

Sometimes people need a little extra help understanding and managing their finances and debts. In this case, seeking the help of a financial professional, such as a credit counselor, could be beneficial.

Credit counseling helps you set a financial plan to attack your debt, and debt consolidation complies all your debts into one payment so avoid juggling multiple payments. This opens up a way for you to rebuild your credit by making payments on time.

Start Paying off Debts

One of the first things you can do to rebuild your credit score is to start immediately paying off debts. Even if it’s just a small amount each month, a little is better than nothing at all. Eliminating every debt as much as you can is recommended to increase your score.

Financial gurus seem split on how to tackle your debts. Some say that paying off the debts with the highest interest rate save you money, while others encourage the smaller debts to start a debt snowball.

Keep Your Debt-to-Income Ratio Low

Debt-to-income ratio is a fancy way of comparing the amount of debt you have with your income. When your deficits are higher than your monthly income, this is where the trouble starts.

Borrowers decide if you can handle more debt by looking at this ratio. They take your total debts and divide it by your gross monthly income to get a percentage. If that percentage is high (43% is a ‘limit’ especially for those looking to secure a mortgage), lenders are wary and will likely deny your application for a loan.

To avoid a high debt-to-income ratio, always pay your balances in full on credit cards. This keeps your balance down and your percentage low. Closing accounts can also harm your score.

Be Wary of New Debt

While it may seem tempting to apply for more loans when you’re rebuilding your credit, that may not be wise. Applying for new credit still effects your credit score.

When lenders are considering loaning you money, your credit takes a hard inquiry. A hard inquiry is a credit check where lenders are checking your credit report. Too many hard inquiries can hurt your score, especially if you’re trying to raise it.

Also, think about the amount of debt you have currently before seeking new loans. If you’re struggling to make minimum payments or paying your bills altogether, opening new accounts could only cripple your score further.

Credit Repair: You Can Do It!

While bad credit is indeed an obstacle, it doesn’t have to be a part of your financial future. You can start rebuilding credit by following these seven steps and begin to see a healthier credit score.

Are you interested in learning more about how money affects your lifestyle? Our website covers everything you need to know!

 

LisaLisa

My name is Lisa and my husband Carl, and I are the owners of the Night Helper Blog. We have been married for over 30 years and we have three awesome children Daniel, Alissa, and Elexis plus three very active grandkids. From time to time they too are contributors to the Night Helper Blog. We enjoy reading, listening to music, entertaining, travel, movies and of course blogging. The Night Helper blog was created in 2008. Since then we have been blessed to partner with many well-known Brands like Best Buy, Fisher Price, Toys "R" US., Hasbro, Disney, Teleflora, ClearCorrect, Radio Shack, VTech, KIA Motor, MAZDA and many other great brands.

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