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Rebuilding Your Credit

If you have had a rough couple of years financially, and weathered the storm, now is time to rebuild your credit.  How can you rebuild their credit after having had multiple delinquencies?  The first rule is that it takes some time.  There is no special formula that can restore your credit overnight. In order to restore your credit, consider the major credit score factors; timeliness of payments, average daily balance across trade lines, debt to available credit ratio, history of credit, and types of credit used.  Focus on those factors and restore your credit in a long lasting manner.

Timeliness of Payments:  Obviously, if you don't pay on time, it will hurt your score.  This is true for a simple missed payment that was only days past the deadline.  The more recent the late payment, the more it will affect your score.  Take the time to make sure your bills are all in order and set to be paid in a timely manner so the creditor receives and record it before the late date.  If you can pay your bills, but are not paying them on time, then the problem is in organizing and scheduling.

Average Daily Balance / Debt to Available Credit Ratio:  Even if you may make every payment on time, your credit score can still suffer if you are using up your available credit.  High balances and maxed out cards are just as harmful as missing a payment.  If your credit report always shows balances, and those balances are close to the amount of the credit lines, then your score drops.  Whenever possible, pay down balances and don't add to them by spend unnecessarily.  Sending minimum monthly payments on time may be great for the timeliness aspect of your score but will not do anything for your balances.

History of Credit:  The longer you display a positive credit history, the higher your score.  If you are new to having credit and have had limited accounts for limited years, you will have a lower score.  For some, credit restoration is just a matter of time.  If you are new to having credit accounts, then you are in the best possible position to build a strong credit background by slowly adding accounts, maintaining low balances, and paying on time.  It is also important how long accounts have been open.  If you recently opened accounts, your score drops until you show that you can maintain those accounts for a period of time.  Newly purchased homes or cars can slow down your ability to make large purchases on credit in the immediate future. 

Type of Credit: A smaller portion of your score considers the type and prevalence of the credit you use.  Your credit can be affected by an abundance of store cards or revolving debt as compared to installment loans.  Maintaining a proper balance by not opening too many store cards will help increase your score.

Keep in mind that all of these factors will help you slowly restore your credit to a stronger standing on a more long term basis.  Still, the credit bureaus reporting this information must report your credit accurately.  If late payments are being reported that did not happen, or if creditors are not updating your balances, you have rights under the Fair Credit Reporting Act.  Contact SmithMarco, P.C., for a free consultation to assist you in maintaining a credit report with maximum possible accuracy. 

 

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