A bankruptcy among the many events that is more than likely to decimate your credit score. At the end of your bankruptcy proceedings, you will find your credit rating severely hit and in urgent need for improvement. And, you will need to repair it immediately, or face the consequences of having an irreparable credit on your head.
The Need for Promptness
What is the need for rebuilding bad credit? The lenders across the country judge you based on your credit score. They see your credit score, which is a number derived from your credit history and decide whether you are trustworthy enough to be entrusted with their money. If your credit score is low, the lenders will look at you as a high:risk person. They will see that since your past payment history is sketchy, chances of you paying up are quite less too. So, on the basis of your low credit score, you have very few chances of availing credit in the future. If you do, you will have to pay a high interest rate to the lender, subsequently, the lender views you to be a high risk investment.
Tips to Rebuild Credit
Before we go on, one needs to first know what defines a credit score. A credit score is derived by an algorithm. Several factors affect this algorithm in different proportions. Here are the factors that help determine your credit score and their respective weights.
- Payment History : 35%
- Amounts Currently Owed : 30%
- Length of Credit History : 15%
- Amount of New Credit : 10%
- Types of Credit Used : 10%
So, now that you know what are the factors that determine your credit score, let us see the ways to rebuild your bad credit as fast as possible.
Pay Off Your Debts
This one’s pretty obvious, right? Since 30% (amounts owed) hinges a lot on how many debts you have pending, it is imperative that you knock a majority of your debts off. Systematize your expenses. Make sure that you devote a sizable part of your monthly income towards paying off your debts. It might involve having to cut down on a few items here and there, but it will completely rid you off your debts and you’ll be starting with a clean slate soon. Paying off debts regularly will also improve your recent payment history. So that 35% is again a bonus.
Open and Shut New Lines of Credit
In case you feel you’re falling a few bucks short of your monthly payments, then it might be a good idea to open short term lines of credit. So, you could get a secured credit card, bad credit loans or instant no fax payday loans or even short term loans. This will help you in two ways. First, it will obviously help clear up the amounts owed and secondly, if you plug these short term credit lines quickly enough, you’ll have a good improvement on your payment history, and you will also be able to prove your competence in paying off the different lines of credit used.
Old Cards Can be Gold Cards!
I know it was a terrible way of putting it, but an important tip to create more credit fast is to NOT shut the old credit cards. A lot of people often choose to close down the debt accounts, which have already been paid off. But, if you do have some credit card accounts, which you have paid off entirely and haven’t used in some time, it is a vital thumbs up on your credit rating, because it shows that the thing is paid off, so the amounts owed on one of the accounts is actually zero.
Befriend Your Lender
A lot of people make the mistake of ignoring the calls of their lenders when they find themselves unable to pay the money back. But on the contrary, if you do not ignore them and instead explain to them your inability to pay, then the lender might consider your position and work out a mutually agreeable payment schedule. After all, your lender is more concerned with getting his money back rather than muddle up your credit score for you. But if you ignore him, you really leave him with no other choice than to report you.
Monitor Your Progress
Another very important tip to help you rebuild credit is that you need to keep an eye on your credit reports. Credit reports may come out wrong and if you think they are, you can file a complaint and get the thing checked and updated.
Rebuilding credit, as outlined in the earlier paragraphs is very important, so hopefully you’ll take this advice seriously and embark on a credit repair mission right away.