How to bounce back from bad credit
Paying off debt can be a grueling experience. It challenges your patience, it pushes you to trim the fat on your budget, and then, after all of that struggle, it makes your life seem back to normal.
Being back to normal is like, #lifegoals for any of us who have experienced debt repayment. The best part of all? Once you pay it off, you can finally tackle all of the new things you actually want to put your money toward.
However, let's not forget one last step that most of us might miss.
REBUILDING YOUR CREDIT
*lights fade, thunder crashes, wine bottle is suddenly empty*
Before you have a mild (or major) panic attack because even just hearing the word "credit" makes your heart sink into your belly, it's not as scary as you think. It's also not as hard.
Bouncing back from bad credit (which you most likely have after years of ignoring your debt), is easy. Especially since you're already taking the appropriate steps to set yourself up for financial success by paying off what's left of your debt.
How do you do it?
Step 1 – What is your credit score?
Before we get into the tricks and tips, it's important that you know what your credit score is to see what we're working with. Maybe you're already doing better than you thought, or maybe you're doing worse than you thought. Either way – there is no point in guessing when we can find out for free.
Surprise! 14% of Canadians are considered "very good" which is a credit score between 700-749. Yeah, that's it! 14 measly percent! We can do better than that, guys.
Step 2 – Always make your payments on time
Being late for payments on credit cards and loans is always the number one downfall of a credit score, as it is worth 35% of your total. Never had a delinquency? You're a rock-star. Maybe had one or two? That's okay! Just ensure that you don't let it happen again. Plan to make a payment on the 1st of every month, or (even better), set up automatic payments.
Step 3 – Be aware of your credit limits
Did you know that credit bureaus actually care how much debt you hold on your cards or loans? Turns out that "credit utilization" is worth 30% of your total score. If you keep your used credit at less than 30%, you will be on your way to getting that A (rhymes are cute)!
Step 4 – How long have your accounts been open?
Before you finish paying off your debt and vow to cut that credit card up because it's what got you into this mess, think! How long have you had this credit card or line of credit? The card that you have had around the longest is the one that is going to help you the most (potentially). A credit history is worth 15% of your overall score, and the bureaus would prefer your accounts be open for a minimum of 6 months to collect data.
Step 5 – Don't apply for anymore credit
Every single time you apply for a new line of credit, credit card, or loan, you're at risk of jeopardizing your credit score. A soft inquiry (you checking your score) is fine, but a hard inquiry (potential creditor checking) may not be. Based on your credit history, the bureaus will review how long you've been building your credit score, and how many times you've applied. We don't want to look desperate now, do we?
Just be smart!
I know (believe me, I know), that credit scores and credit in general can be boring to learn about, but it is important that you know the basics. If you want to take out a mortgage one day, you'll need to have a good credit score, or be capable of getting there.
Since you've been patient as you've continued to make payments on your debt, it won't hurt to be patient while making changes to improve your credit score either. So say "SEE YA NEVER" to that bad credit score, and "HELL TO THE O" to that high ranking we've all been dying to get.
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