When your credit record is good, it’s easier to open credit cards, obtain loans and other types of financing. And the better your credit record looks, the more favorable lending terms you’ll receive from banks and other financial institutions. Whether you’re trying to rebuild your credit report or simply improve it, here are some tips for you to consider.
Understand your financial patterns
If your credit report is impacted by a bankruptcy or foreclosure, it’s good to remember that the worst is behind you and you are not alone. The first step to recovery after a credit mishap is to address the core issue that caused the problem.
“Look at your situation and decide why you got into trouble in the first place,” says Dara Duguay, executive director of the Credit Builders Alliance in Washington, D.C. “The important thing is to start changing your behavior. If you have always paid late—why did you?”
“Maybe your income was not enough to pay your bills. Maybe your car lease payment was too high. Maybe you were living beyond you means. Maybe you needed to get retrained for a better job,” Duguay says.
Once you’ve identified the core issue, you can move forward and start rebuilding your credit.
Take small steps that lead to creditworthiness
Rebuilding begins with reestablishing credit, and there are lots of options to help you get started.
One simple way to begin is to use some of your savings to invest in a secured card. When you’re approved for a secured card, you deposit a minimum amount with the lender, say $300, and then use the card just like a credit card up to that amount.
“With a secured card, you are putting your money into the bank and you are borrowing against your own money,” Duguay says. As you use the card, your bank reports to the credit bureaus, allowing you to build or rebuild a positive credit history.
In time, Duguay says, “You could ask to see if you qualify and move on to a regular credit card.”
Make bill payments effortless
As you use your secured card to build a strong credit history, it’s important not to let any late bill payments drive you off course. When you miss a payment to a creditor, such as a medical provider or auto loan servicer, that missed payment is usually reported to at least one of the three United States credit bureaus: Experian, Equifax and TransUnion.
Fortunately, you can make it easier to avoid late or missed bill payments by setting up automatic payments wherever possible. Your bank will likely have a way to automate payments, as will your utility companies and other businesses you make regular payments to.
You can also use your bank’s financial management tools to receive alerts when a payment is due or confirmation that your payment has been completed.
If you continue to use your secured card appropriately, pay your bills on time and check your credit report regularly to review your progress, you can find your way back to becoming a creditworthy candidate.