Credit cards can be very convenient for enabling us to make quick purchases with the opportunity to pay later. However, it is easy to become lured into the prospect of making every payment on your credit card and the piling of debts can result in a bad credit score.
If you have diminished your credit score by failing to make payments on time, here are a number of ways through which you can rebuild your credit.
Face the facts
First and foremost, you cannot help yourself get out of a bad credit situation if you are not willing to face your debt problems. As the saying goes, ‘knowing the problem is half the solution’, it is essential that you know the causes that led to your poor credit score and identify the means of solving it.
You need to first review and evaluate your annual credit report after requesting it from a FTC affiliated website. You can easily obtain a report from agencies such as TransUnion, Equifax and look closely for discrepancies and errors.
Know your credit utilization ratio
To avoid making the same mistakes again, you need to fully understand what your credit utilization ratio is. This simply refers to the percentage of credit that you use. The higher your credit utilization ratio, the lower your score is and vice versa. In other words, the more you use of your available credit, the more chance that your credit score will fall.
In order for you to rebuild your credit score, you need to know how much your overall credit is and ensure that you do not use it beyond the limit and get a poor score. You can calculate your credit utilization by the amount of your outstanding payments divided by that of the total credit card limit, expressed as a percentage. Ideally, you need to aim for a credit utilization of less than 35% percent.
Sign up for a secured credit card
Another way to rebuild your credit is to start your credit history from scratch. Register for a new secured credit card to start a positive credit card history. A secured card is one in which you deposit a sum of money as collateral to the credit issuer. When you use this credit card and make sure your outstanding payments are paid on-time, you develop a high credit record.
Pay on time
One of the worst things you can do is to delay your points passed the deadline after which you will have to pay the total amount with interest. If your outstanding payments are constantly past the deadline, it can diminish your credit score and make it very difficult for you to obtain credit in the future. Lenders will notice the delays in the credit report, and if you default on any payments, you will experience credit problems for up to 7 years.
In short, rebuilding credit requires patience and dedication and it is not something that you can achieve overnight. It involves being smart in the way in which you spend and making sure your credit score is not affected by late payments.