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5 steps to improving your credit score

It’s easy to feel overwhelmed once you are labeled with a “bad” credit score (below 630). But with time and effort, you can rebuild your score. And the effort pays off.

Repairing your credit rating will open renter, loan and credit opportunities that may be currently closed to you. Additionally, you may be able to secure better interest rates, saving you money in the future. So how can you start rebuilding your credit score?

  1. Improve your credit history.The most important factor in building good credit is having a positive credit history. Lenders want to see that you pay off all of your bills, and on time. Mark on your calendars when different bills are due, and note how much you owe for each one. Make sure that you have enough cash on hand to pay off your bill by that date.
  2. Evaluate your spending habits. In order to afford your payments, take a close look at your spending habits. You may need to cut back on unnecessary purchases until you are confident that you can make all of your credit card payments in full. Track purchases for a month, categorizing them by type of purchase. The exact categories will change based on your spending habits. Determine how much you spend on necessities versus how much you spend on additional items. If you are spending a lot of money on non-necessities, you may need to set a limit for how much you can spend on a certain category each month.
  3. Watch your credit utilization ratio. Do not spend more than 30% of your available credit line each month. You can calculate this ratio by dividing the amount of credit you use each month by your total available credit.
  4. Get a secured credit card. If you are having trouble getting approved for a credit card, look into a secure credit card. Unlike a traditional credit card, you deposit a set amount of money onto the card when you open the account. This deposit acts as collateral for the lender. You should still only spend up to 30% of your total available credit line. This number is usually close to the amount of your deposited collateral.
  5. Find a co-signer for your credit card. Another option is to ask a friend or family member to co-sign on a credit card with you. This will help you gain credit approval and start rebuilding your credit score. However, when you co-sign with another person, you risk their credit reputation as well as your own. You must be willing and able to repay your credit on time each month or their credit score will suffer.

Don’t lose hope. It will take some time to rebuild credit – negative credit practices can live on your credit history for 7+ years. However, with diligent planning, you will be able to turn your credit score around and protect your credit future.

If you are being harassed by creditors, make sure that you know your rights. For example, creditors may not call you at work if you ask them not to. If a creditor violates the Fair Debt Collection Practices Act, they may be liable for monetary damages. Consider contacting an attorney who can protect your rights, and represent you against your creditors if they are illegally harassing you.

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