Rebuild Bad Credit – How to Fix and Improve your Credit Score

If you have poor credit or bad credit, you probably already know how hard it is to get access to loans and credit cards. Although there are loans for bad credit, they might sometimes come with higher interest rates and fees. All is not over, though. If you are willing to work hard, you can repair and rebuild your bad credit. Improving your Bad Credit is not easy. There are many examples of those who work diligently to rebuild bad credit.

Credit Score Ranges – Good vs Poor vs Bad?

Credit Score is offered by some major bureaus: Experian, TransUnion, Equifax. The credit score ranges below demonstrate what banks and financial institutions consider as excellent vs good vs poor vs bad.

  • Excellent Credit Score: Above 750
  • Good Credit Score: 700-750
  • Fair Credit Score: 650 – 700
  • Poor Credit Score: 550 – 650
  • Bad Credit Score: Below 550

What is Bad Credit?

Bad Credit occurs when a borrower is not able to keep up with the payments of loans and defaults on a loan. Generally, a credit score below 550 is considered a bad credit score. Credit Bureaus like Experian and TransUnion get credit data of all borrowers on a periodic basis from all banks. Based on this data, credit bureaus take below factors into consideration while calculating borrower credit:

  • Past Payment history – 35%
  • Total Amount owed currently – 30%
  • Length of credit history – 15%
  • Credit Mix (Loans vs Credit Cards across categories) – 10%
  • New Credit – 10%

Why might you have Bad Credit?

Some of the possible causes why you might have poor or bad credit include:

  • Missing Bill payments or Late Payments on Credit Cards, Loans, Mortgage, etc
  • Defaulting on a Loan
  • Too Many Hard Credit Checks on your profile
  • Too much Debt
  • Credit Utilization Ratio is high (Credit used vs Credit available Ratio)

Can you Rebuild Bad Credit?

Yes. Absolutely.

If you are suffering from bad credit, you can definitely rebuild and repair your credit. It is definitely not an overnight task. Often, it might take several years for someone to rebuild their credit from bad credit to good credit. However, there are no shortcuts. And, if you are serious about maintaining your financial wellbeing, it is extremely important.

How to Improve your Credit Score

Pay Bills on time

One of the biggest culprits in contributing to someone’s bad or poor credit score is their poor bill payment history. Even if you are paying your bills but paying them late every month, over a period of time, this contributes to one’s poor credit. Never miss a monthly installment on your loan.

Our suggestion is to make a list of all your bill payment dates and never miss a payment.

Get current on all your payments

If you have already missed some payments in the past, then you should definitely get current with all your payments. This may also include any defaults that you might have been a part of. If you cannot make a payment, reach out to your bank and see if they can make a one-time exception to meet your needs.

Minimize Hard Credit Checks

When one applies to a loan or credit product, financial institutions perform a hard credit check on their account. Not always. Many banks now do a soft credit check also. Too many Hard Credit Check reflects on one’s credit score poorly. Credit Bureaus perceive the borrower as being rejected for credit and the borrower being desperate to get a loan. To avoid this situation, never apply for a No Hard Credit Check Loan.

Minimize Debt

If you have too many loans and credit cards that are all being used at the same time, consider reducing your debt. When you have a lot of debt, credit bureaus obviously think you are less worthy of credit.

Rebuild Bad Credit – How to improve your Credit

Monitor your Credit History

The first step to improve your credit score is to know where your credit score currently stands. There are a ton of free tools to check your free credit score and monitor it frequently. By monitoring your credit history, one can clearly notice when their credit is going off the path and take the steps necessary to rebuild bad credit.

Keep a track of all your Credit Due Dates

One of the biggest reasons people miss their monthly loan and credit card payments is because they forget due dates for various payments. One way you can avoid missed payments is to schedule an auto-pay and to make sure that you have a calendar reminder to ensure payment is made. Alternatively, you can schedule one day every month to be the payments day.

Never borrow when you do not need to

Many get into a bad credit cycle because they borrow money when they do not need the money. A quick loan for an unwanted expense is an easy recipe for a financial disaster. Our suggestion for borrowers is to never borrow money for expenses like gifts, luxury, dining or gadgets. Loans must be used for critical needs like education, daily needs, health, etc. When you do borrow, make sure you borrow from a responsible lender.