There are a plethora of options for rebuilding bad credit, but the question remains which one works legitimately and in the shortest amount of time. To make you aware of the various ways through which this can be accomplished, here are some insights.
How to Rebuild Legitimately Bad Credit
A low or bad credit score not only negatively impacts one’s overall financial health, but also reduces the chances of getting a lower interest rate on the loan. But the truth is that rebuilding bad credit takes a long time. The slow process can often discourage a person from moving forward, and he or she eventually gives up.
Apart from the traditional method, there are some other legitimate tricks that can help you get a good credit score in no time. But, honestly, it would require you to take extreme leaps. Here are some options you can consider depending on the current circumstances.
1. Open a New Credit Card Account
Contrary to popular belief, the opening a fresh credit card When you have a bad credit score, increasing the total available credit can be of great help. Know that the percentage of available credit you spend also plays an important role in determining your credit score.
Now, reducing this percentage by accelerating the total available credit can really boost a credit score in a short period of time. However, this strategy can sometimes backfire as opening multiple new accounts can shorten the average age of the accounts and, ultimately, lead to poor credit scores.
While the credit available in your account can lead you to spend more on loans, not using a credit card can also result in a company closing a dormant credit account.
So, the best trick is to add Credit limit of your existing credit card and pay off existing debt. Also, be sure to crack down on extra spending habits on your credit cards.
2. Clear Existing Debts
Since a large percentage (30% or more) contributes to the debt, clearing the existing loans when calculating the credit score. It doesn’t matter how much debt you have. What matters is the difference between the money you owe and the credit limit you have. This ratio is called “credit utilization.”
To help you understand better, here is an example. Let’s say person X has a credit limit of Rs 10,000 and the balance Rs 5,000. Then his credit utilization will be 50%. However, due to certain reasons, if the individual has maxed out the credit limit of Rs 10,000, the utilization automatically becomes 100%.
While there are many theories regarding correct credit utilization levels, reliable sources and experts suggest a rate of no more than 30%. In short, one should not exceed the amount of Rs 3,000, if the credit limit is Rs 10,000.
Still, paying off the balance is one of the fastest ways to boost your credit score if the debt you owe is more than the actual amount. A second job or freelancing can help with extra cash to pay off debt.
3. Try to negotiate the outstanding balance
Perhaps, the credit score has taken a deep dive recently and your bills are in debt collection. It seems a bit daunting to fix but not impossible. While you can’t erase your past mistakes that have been written down on a credit report, there is something that can be done to control the loss — just “set them out.”
“Settling them” means you can negotiate the debts that you owe. Try to talk to the person concerned and negotiate a loan of some amount. If you succeed in doing so, a big headache is already gone. But make sure you get this discussion in the form of a memorandum of understanding (or written document). If the negotiation is successful, try paying some cash upfront so the lender has some confidence in you.
4. Pay twice a month
You have to give up the traditional method of making timely payments only once a month. You may feel like you’re doing a great job by making reasonable payments, even if the credit card is maxed out. However, if you look at it from a different perspective, the matter is different.
Know that your creditors only report balances to the relevant credit bureaus once a month. So, if you run up a high balance each month, it can appear as though you are using credit excessively.
Suppose, for example, a person has a rewards credit card 10,000 with a limit of Rs. Since it is a rewards card, there will be chances of using the card again and again and in no time, the person may be out of bounds. When the credit statement arrives, it will say that the person concerned has an outstanding balance of Rs 10,000 and sends a check to pay it off.
The problem, however, is that the card issuer is more likely to report the balance statement every month. This will make it look like he has an outstanding balance of Rs 10,000 and a credit limit of Rs 10,000, which means 100% credit utilization rate, which is not good for credit score.
The above problem can be overcome by breaking the credit card payment. make as many as you can You want to make purchases with your credit card But when paying, do it twice a month instead of once. This will help reduce running balance.
5. Fix Your Credit Report Errors
Correcting any errors in your credit report that you think should not have happened is the best way to rebuild a bad credit score, as it contributes to about 5% of the total credit score. Once you have received your credit report, check that there are no errors.
So, for example, some payments must be marked “late” even if you paid them on time or before the due date. Or there may have been negative information regarding a transaction or the details listed are too old.
Once errors are reported in a credit report, credit agencies or credit bureaus must dispute them within 30 working days. Once the errors are corrected, the credit score will improve significantly in no time.
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