Financial management may require you to rebuild credit, especially if you have gone through a tough financial time or lost your job.
Consumer proposals may prevent you from having to file for bankruptcy but will require rebuilding credit
We have gathered some tips to help you rebuild your credit score faster than you think.
How to Rebuild your Score
1) First, know your credit score
Knowing what your current credit score is is the first step to rebuilding. It will let you know exactly where you stand, and what steps you need to take to rebuild it.
Understanding your payment history and current credit will place you in a position to get the best interest rate.
Your credit score is taken from your credit report and considers your entire credit history.
There are three major credit bureaus in the UK that can help you determine whether you have a poor credit score or not.
- Experian: at least 881
- Equifax: at least 420
- TransUnion: at least 604
2) Return to full repayments as soon as you can
If your personal circumstances have placed you in such a position that you requested a payment holiday, reduced payments or even missing payments, then start repaying your credit accounts as soon as possible with the full, agreed-upon amounts.
This is because your credit provider will still report partial or skipped payments to your credit reference agency, which will impact your credit score.
3) Bring down all credit balances
If you took out a personal loan or depended on credit card payments to survive a tough financial time, it is best that you try to bring down those credit balances.
Attempt to pay more than the minimum payment to reduce your outstanding balances.
4) Use a credit rebuilder card
If you checked your credit score and it is below the level that is considered “good”, you should look into getting credit cards that are used for bad credit.
These have low borrowing limits to offset the risk to the credit card issuer. Once you have reached a better credit score, move on to lower-cost credit card accounts.
5) Communicate with your lender
Being honest with your credit provider about your financial health is the best way to prevent them from taking drastic measures.
Open communication will build trust and may increase your credit limit or decrease your scheduled payments until such a time that you can return to your on-time payments.
Why is it good to rebuild your credit score?
Your credit rating is calculated by a lender, and is based on:
- Information in credit reports
- Details included in your application
- Information if you have previously loaned from the company.
If you have a good credit report and credit score, you are more likely to be awarded favourable interest rates. Higher credit scores mean you are lower risk and can manage your credit, such as sticking to a repayment plan.
Other benefits of rebuilding your score include:
- Better chance of receiving a credit card, loan (including personal and payday loans) and mortgage.
- Lower interest rates on loans
- Better insurance rates
- Higher credit limits will allow you better credit utilization.
How long does rebuilding a credit score take?
Getting a good credit score again will not happen overnight. New information, like details from your bank account or your repayments, will take weeks to appear on your credit file.
Any new accounts may have to mature for several weeks before they start boosting your credit score.
Regularly paying money into outstanding credit accounts will improve your score and leave you in good standing with credit card companies.
Missed payments or defaults on the other hand will remain on your credit record for a long time and will impact available credit and interest rates.
It is, therefore, best to try to quickly rebuild your score.