Credit Repair Toolkit: 5 Smart Ways To Rebuild Your Credit Score

Are you worried over your low credit score? Let’s show you how you can rebuild your credit score fast and improve your credit history.

A low credit score doesn’t mean it will remain with you forever. With the right steps, you can raise your credit score, making it easy to get approved for credit cards and loans at better interest rates. Rebuilding your credit score may seem like a monumental challenge. But it’s easier than you think.

As they say, getting started is the biggest challenge. Once you have picked up momentum by clearing past dues and building new credit responsibly, you’ll soon be on your way to an excellent credit score.

Tips to Rebuild your Credit Score

If you’re in a bad credit situation, don’t despair. By following the steps listed here, you can put yourself on the track towards good credit. Note that some of the suggestions listed here may not apply to you. It’s okay. You can skip those steps and choose the ones that work for your financial situation.

#1: Assess your Credit Score and Report

Before taking any action, the first step is to understand your current financial situation. Start by checking your latest credit score and report. You can check your credit score for free at trusted sites like CreditMantri. You can also download a copy of your credit report from CreditMantri.

Armed with these details, you need to identify the mistakes that caused your credit scores to drop in the first place. The reasons may be numerous: missed EMI payments, late credit card bills, personal loan defaults, etc.

The first step to rebuild your credit is to take an honest look at your credit score and report. This gives you a clear picture of what you have done wrong and helps you avoid these mistakes in the future.

If you’re finding it overwhelming to handle this on your own, you can seek professional help from trusted credit counselling agencies like CreditMantri. They provide you with clear guidance on how to navigate the complex world of credit.

#2: Dispute any Incorrect Information

If you notice any inaccuracies reported on your credit report, then you can raise a dispute with your lender/creditor or the credit bureau. The credit bureau will investigate your claim and, if found true, then will delete the corresponding entry from your credit report. This can help in boosting your credit score.

Deleting inaccurate entries is a crucial step in rebuilding credit. This is because, apart from improving your score, deleting an incorrect entry is vital so that all the information on your credit report is correct.

#3: Pay Off Existing Debts

This is undoubtedly the most challenging part of rebuilding credit. Yet, it’s still one of the most crucial steps in credit repair. You cannot rebuild your credit without clearing past dues. Paying off existing debts doesn’t happen overnight. First, You need to work out a plan of action on how to remove all pending dues. This may involve cutting down your regular expenses so that you can save money to settle outstanding bills.

Here are a few tips to help you clear outstanding debts:

Pay Pending Balances and Get Current: If you’re just a few months behind on your loans and credit card bills, then you can pay them outright before the situation gets worse and your debts go into collection. If you’re finding it hard to raise the cash, you can ask a friend or family member to chip in. Alternatively, you can also take an instant loan like Payday loans to pay your outstanding credit card bills and loan EMIs. However, if you’re taking a loan, you have to ensure that you repay the new loan on time to avoid further damage to your credit score.
Consider debt consolidation: Managing several debts at the same time can be challenging, especially when they have high-interest rates and steep late penalties. Debt consolidation is the process of combining several debts into one so that you only have to deal with a single loan payment instead of many. Another significant advantage of debt consolidation is that the interest rate is lower than other high rate credits like a credit card.
Negotiate with your Lender: If you can’t pay as per the agreed loan schedule, work with your lender to negotiate another repayment plan. Depending on your financial situation, the lender may agree to a new arrangement like reducing EMIs or settling the loan with a one-time payment.

#4: Practise Responsible Credit Behaviour

After you’ve monitored and handled your pending debts, the next step is to spend some time and educate yourself on responsible credit behaviour. This helps you avoid making the same mistakes again and gives you a grip on handling credit responsibly.

Here are a few tips to keep in mind:

Do NOT miss credit/loan payments: Payment history is one of the most significant factors that impact your credit score. So, ensure that you don’t miss a credit card or loan payment. If you have a habit of forgetting the due dates, you can set up an automatic debit facility on your bank account to pay bills automatically every month before the due date.
Pay your credit card balances in full every month: This not only helps you avoid high-interests but also reduces your overall debts, which in turn boosts your credit score.
Keep your credit card balance low: Besides the payment history and total debts, the credit utilisation ratio plays a crucial role in determining your credit score. Credit utilisation is the total credit balance to overall income. By paying your credit card bills in full and avoiding maxing out your card, you can keep the utilisation ratio low, thereby improving your credit score.
Do not borrow more than you can afford: With the easy availability of loans, it may be tempting to take loans for luxurious expenses and other frivolous needs. However, one of the basic tenets of responsible financial behaviour is not borrowing more than you can afford. If you’re unsure whether you can pay the monthly EMI without worry, then taking that loan isn’t a smart choice.

#5: Take New Credit Confidently

Once you’ve assessed your financial situation, tackled old debts, and inculcated positive financial habits, the next step is to start taking new credits responsibly. You cannot rebuild your credit score by staying away from credit. The key here is NOT to avoid credits but to use them smartly.

Here are some ways you can take on new credit with a low credit score:

Consider a secured personal loan or get a secured credit card.
Take a short-term credit rebuilder loan.

By repaying the loan EMIs/credit card bills on time, you can demonstrate responsible credit behaviour, thereby improving your scores over time. Keep in mind that applying for new credit results in a hard inquiry on your credit report. This may bring down your credit score by a few points. However, this is only a temporary effect. Once you start repaying your bills on time, your credit score will improve over time.

Finally, Be Patient

Your credit score won’t improve until you demonstrate that you have what it takes to handle credit responsibly. Follow the best practices listed above – repaying your bills on time, borrowing only what you can pay, avoiding maxing out your credit cards or taking on too many loans, and so on.

Also, remember that your credit score doesn’t improve overnight. It takes time for the effects of positive credit behaviour to take effect. The key here is to be patient and not get discouraged if there are no changes immediately. Stick with the strategies listed here, and over time, your credit scores will improve, and you can qualify for the best loans and credit card offers.