A credit rating uses financial information about an individual’s financial history to calculate their credit risk based on the types of accounts they have opened, the amount they owe, the length of time they have had those accounts open, and how long it has been since they paid the bills on those accounts.
This information is then reported to several credit reporting agencies to determine how credit-worthy the individual is. Once this information is gathered, lenders review the reports to determine whether or not a particular person will be a good credit risk for them. If a borrower applies for a loan or wants to purchase a house, the lender will request for the borrower’s credit report to identify if the borrower is a good credit risk.
If you find out that you have a bad credit rating, and you’ve long wondered how long does it take to rebuild credit, there is no need to panic. There are many things you can do to make your credit score healthy again. These include:
Establish A Monthly Budget
One of the most important tips to improve your rating is to establish a monthly budget. This may seem like common sense, but many people fail to do this because they don’t know that a budget is a necessity.
By following a budget, you’re setting limits on your spending, as well as deciding when you’ll be able to make all of your monthly payments on time. Most importantly, because you now have set limits, it’ll be easier for you to pay your bills on time and make sure that these are all accounted for. It can help avoid that vicious cycle of debt, which can only hurt your credit score.
Paying your bills on time is a good indicator of good financial performance, and this is highly needed for businesses to continue trusting you.
Analyze And Keep Up With Your Credit Report
The next tip to improve your rating is to keep up with your credit report. Many individuals who know how to improve their credit rating don’t only check their credit reports annually, but at least every six months. This is an excellent way to help yourself stay on top of your reports so that the credit bureaus will know what improvements you’ve made in your scores over the years.
Make sure you know what is and isn’t on your report. This includes things such as your name, address, Social Security number, and previous addresses. If you currently have a job, you’ll also find some of your personal information on their reports as well.
If you discover that your credit report is inaccurate, you should report the information to the credit bureau as soon as possible. They have 30 days to investigate any inaccuracies and correct them, but it’ll not affect your ability to get a credit card or loan at the time.
Get More Credit Through Paying Your Utility Bills On Time
You don’t have to struggle through extreme measures of trying to improve your credit score. There are simple but very effective ways for you to do this. One of the best ways you can do this is by paying your utility bills on time.
With the right software, you can actually sync your bank account to identify which of these payments are for your utilities and your telecommunication bills. This information can be used for you to deliver your credit score payments on time.
Correct Any Mistakes On Your Credit Report
In the second bullet above, we mentioned the need to analyze your credit report. This is also very important, so you can correct any mistake that may have been recorded on your credit report. Take special notice of anything labeled as default or late payments, when in fact you’ve already made payment. Otherwise, if you let it happen that way, you’re hurting your credit score even more.
Here’s how you can correct these mistakes on your credit report:
- Call the creditors by phone, so they can rectify these mistakes ASAP;
- Follow-up with a formal letter, so there’s a record of your request, in case of any dispute;
- Notify the credit bureaus of any pending changes that need to be recorded on your credit report.
Keep Low Balances On Your Credit Cards
While you may want to stay away from credit cards, there are instances when it’s simply handy to have one. A credit card can actually be very good to have, particularly just in case of emergencies and if you’re also a frequent traveler. Plus, if you’re trying to improve your credit score, keeping a low balance on your credit card and paying it off early is one way for you to achieve that.
All these things considered, the most important thing for you to remember is that you should never expect to have results overnight. Improving one’s credit score takes time. If you notice that you’ve got a problem with your credit score, the key is for you to make the necessary changes to address it right away. In doing so, you’ll see your credit score slowly improve again.