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How To Rebuild Credit After Financial Hardship

by | Sep 13, 2023 | News

Rebuilding your credit after facing financial difficulties will require some time and effort, but it is absolutely achievable. Here are a few steps to help you get started:

1. Evaluate Your Current Credit Status – Obtain free copies of your credit reports from the three major credit bureaus (Experian, Equifax and TransUnion) at AnnualCreditReport.com. Carefully review your reports for any errors or inaccuracies and make sure to dispute any discrepancies you come across.

2. Develop a Budget – Create a realistic budget that outlines your income, expenses and debt payments. Ensure that your budget allows for meeting basic needs while also allocating funds towards reducing debt.

3. Prioritize Debts with High Interest Rates – Identify debts with high interest rates, such as outstanding credit card balances and focus on paying them off aggressively. Consider consolidating high interest debts by opting for a lower interest loan or transferring the balance to a credit card if it aligns with your circumstances.

4. Make Timely Payments – Pay all of your bills on time, including credit cards, loans, rent payments and utilities. Your payment history significantly influences your credit score.

5. Reduce Credit Card Balances – It’s advisable to ensure that your credit card balances stay comfortably below the credit limit, ideally keeping them under 30% utilization. To speed up the process of reducing your debt, make sure to pay more than just the minimum payment every month.

6. Avoid New Debt – It’s best to limit your applications for new credit accounts since each application can lead to a hard inquiry that might temporarily lower your credit score. Focus on rebuilding your credit by primarily working with your existing accounts.

7. Negotiate with Creditors – If you’re having difficulty making payments, it can be helpful to reach out to your creditors and explain your situation. They may offer temporary hardship programs or options for settling your debts.

8. Consider a Secured Credit Card – In case your credit score is too low to qualify for a traditional credit card, you might want to consider applying for a secured credit card instead. These cards require a cash deposit, which then becomes your credit limit.

9. Diversify Your Credit Mix – Having a variety of different types of credit accounts (credit cards, installment loans, etc.) can have a positive long term impact on improving your overall credit score.

10. Be Patient and Persistent – Rebuilding your credit takes time and won’t happen overnight. It’s important to consistently practice good credit habits, as this will eventually lead to positive improvements.

11. Consider Seeking Professional Advice – If you feel overwhelmed or unsure about the best steps to take, it might be helpful to consult with a credit counseling agency or a financial advisor for guidance.

12. Keep Track of Your Progress – Make a habit of regularly checking your credit reports and scores to monitor how you’re progressing. Many credit monitoring services offer the convenience of free credit score tracking.

Remember that rebuilding your credit after facing financial hardships is not an instant fix. It requires discipline, dedication and patience. As you continue to improve your financial situation and demonstrate responsible management of your credit, your credit score will gradually rise, making it easier for you to qualify for better credit terms in the future.