What to Know About Rebuilding Your Credit Score

Household debt is increasing. The total American household debt as of March of 2018 was 13.21 trillion. Because so many people carry so much debt, it’s not surprising to see credit scores slipping.

There are a variety of reasons a person’s credit score can plummet including:

Home Foreclosure

Foreclosure represents a significant hit to your credit score.

Filing for Bankruptcy

In 2009, nearly 1.41 million people filed for bankruptcy protection and that number has only went up since then. This practice was once considered embarrassing and shameful, but now it’s commonplace.

Miscellaneous Reasons

While you may not have filed bankruptcy or experienced a foreclosure, your credit score can take a hit due to late payments or by taking on new debt to keep your head above water when things are tight.

Now that good economic times seem to be on the horizon; it’s time to start rebuilding your credit. Here are a few ways to accomplish that.

Get a Credit Report

The first step in rebuilding credit is to know where you stand and what your credit profile looks like. 

You can get a free copy of your credit report, and once you do, check it out for inaccuracies and resolve them immediately.

Make On-Time Payments

This is a big one. Thirty-five percent of a person’s credit score is determined by them making payments on time. If you’ve been late in the past, the quick way to get your credit score going in the positive direction is to start making payments on time. Each on-time payment ticks your credit score up a tiny bit.

Bring Delinquencies Up to Date

Another huge aspect of your credit score comes from your credit utilization or credit to debt ratio. If you have an account that’s been closed to non-payment, paying off that debt moves your credit score in the positive direction.

Get Rid of Debt Quickly

It takes far longer to pay off debt when only paying the minimum. Make an effort to pay more on your active accounts to pay down the debt quicker. Even if you pay only a little bit more, it’s a step in the right direction.

Keep Accounts Open

If you have old accounts, avoid closing them. Closing a revolving account hurts your credit score because 15% of your score is determined by how old your credit is. Having a long credit history is good for your credit score. 

Wiping out an account with ten or more years of credit history damages your score. Older accounts help fixing credit down the road, so there worth keeping. 

Spread Credit Around

Not enough credit is bad, and too much credit is bad. The trick is to keep a healthy mix of credit lines open. A combination of credit cards, student loans, mortgages, and car loans is better for your score than having all credit cards.

Be Cautious With New Lines of Credit

It’s important not to take on new debt too quickly. When you apply for new lines of credit, credit companies make a hard inquiry into your credit profile. When it happens too fast, these hard inquiries hurt your credit score.