The Beginner’s Guide to Start Rebuilding Your Credit Today
By: Savvier Wallet
Tags: Credit Repair, Credit Score, Money Management, Personal Finance, Credit

Why You Should Rebuild Your Credit

Ask yourself: what are the things you want to obtain? Then think about whether or not those things require credit. Whether you want to make a large purchase such as an auto loan or real estate or if you just simply want a credit card, it’s ideal to have the lowest interest rate possible. That way, your payments are lower and you are actually paying off the principal balance of the debt rather than paying to simply have debt. It’s beneficial to start rebuilding your credit today so that once you need your credit, you’ve built it up already.

I’ll share a story with you: This past July, my car was totaled in an accident. I still owed around $7,400 on my auto loan but was waiting for the other party’s insurance to pay it off. Even though I had a current loan, I was able to instantly get approved for a new loan (with the same bank) with an interest rate of 8% (mind you, my score still isn’t perfect. It’s around the mid-to-high 600's), and buy a new car that same day with no money down necessary. It felt so good to be able to do that because for a long time, it was difficult for me to get a vehicle unless I had a $2000–3000 down payment. So had I not worked hard to improve my credit score and history, that situation could’ve been a lot more stressful.

Getting Started: Where to Focus Your Focus.

#1: Your Current Bills

Making sure you pay your current bills on time is absolutely key. Bills that are reported to any of the credit bureaus will help you build a positive long-term credit history, which will help increase your credit. Also, keeping your other bills paid prevents future collection debt.

My #1 tip for keeping your bills paid on time is to put them on auto pay. If you’re afraid to put your bills on auto pay, you may need to build a little discipline first as well as get yourself organization financially. You can do this by following these steps:

Build a spreadsheet for all your bills and their due dates. Below is the spreadsheet I made via Google Sheets to simply use as a snapshot for my income, bills, and expenses entirely, but I can quickly refer to it for any due dates I may need to look up as opposed to having to log in to an account online. If you’d like to use this template to start off, click here to make a copy.

Open a 2nd checking account. It may be helpful to have two checking accounts, so you don’t run the risk of accidentally overspending, putting your bill money at risk. Having your bills linked to a “Bill Account” and coming out automatically will ensure that your bills are paid on time.

Focus on building good habits long-term. If you’ve had a couple of late payments due to being in a bind, be sure to resume making on-time payments once you recover. Soon, those on-time payments over time will matter more than those few late payments.

#2: Your Credit Report

Your credit report will list all your accounts, your debt and more. To take a look at your credit report, I recommend setting up an account at Credit Karma. It will show you your credit score as well, but beware that it is not the FICO score, so it may or may not be accurate. The point of using sites like Credit Karma, Credit Sesame, etc. is to begin using it as a tool for evaluating, tracking, and monitoring your credit.

Side Note: Remember — you want to make sure there are no inaccuracies on your credit report and that every account belongs to you.

#3: Collection Debt

There is differing advice when it comes to handling collection debt, but I personally decided to pay off my collection debt, so that’s what I recommend. I do suggest paying off your newest collections first, because your newest debt is what affects your score the most and depending on how long your older debt has been on your credit report, it may be due to fall off (your collections could hang on for about 7–10 years).

#4: Get a Credit Card

If you’re already have credit card debt, focus on paying it down asap! Paying off your credit card is the quickest way to increase your credit score. If you don’t have a credit card and having a hard time qualifying for one, get what’s called a “secured” credit card. With a secured credit card, you’re required to give a deposit which will be used as your credit line. When I was ready to get a credit card, I paid a $700 deposit to use as my credit line (I believe the minimum with some cards is as low as $300). I used my card responsibly for about 6 months — using the card and then paying off the full balance before the due date. After 6 months, my $700 was transferred back into my bank, my card became “unsecured” and I received a credit limit of $2,000.

These steps should give you a good idea of where to get started if you’re thinking about repairing/ rebuilding your credit. If there’s anything you have questions about or something you’d like to be expanded upon, please state in the comments below. Thanks for reading!