The number one question I get from clients, prospective clients, family, friends, and strangers is this – “what is the fastest way to rebuild my credit?”. In other words – “what can I do NOW to increase my credit score?”.
Of course, the answer varies depending on a person’s individual credit profile and there isn’t just one easy, uniform answer. Thank goodness we can narrow it down to a few different options, and we’ve done that in this article for you.
Here are three common scenarios (and solutions) that you or someone close to you might be in that have negative impacts on your credit:
NO CREDIT – You can fall into this category when your credit profile is considered “thin”, meaning you don’t have much on your credit report. Some people think no credit is worse than having bad credit, but I always say the opposite because usually adding a positive line of credit to your report and building credit history that way can do wonders. But again, this can be different based on your specific credit profile.
SOLUTION – With a thin profile, your goal (and only option to increase your credit score) is to add to it – and only add positive accounts! Positive accounts can be credit cards, auto loans, mortgage loans, and personal loans. Getting any type of loan with no credit is difficult, so the best option is to add a credit card to your profile. Again, with no credit this can also be challenging. Fortunately, there are credit card companies, banks, and credit unions that offer solutions to this. The downfall is - unlike typical credit cards (unsecured credit cards), they require a deposit. This means you give the lender a few hundred dollars and that amounts to your credit limit. Even though you are guaranteeing the loan by putting up your own money as collateral, you can still be denied for a secured credit card. The amount of time it takes for this new card to report to your credit profile varies. The Credit Builder Card is the fastest we have seen by reporting within 2 weeks of opening. Many times, it reports to the credit bureaus before you even receive the card, this is great especially since we are talking about FAST ways to rebuild your credit.
HIGH CREDIT CARD BALANCES – I’m sure we all know how you can fall into this category, and we also know it’s pretty easy to do so. This happens by simply putting things on your credit card that you don’t pay back within thirty days. Each credit card has a limit, and your balance in comparison to that limit determines your utilization. For example, if your credit limit is $20,000 and your balance is at $18,000 then your utilization is at 90%. An ideal utilization is under 30%; and 5% utilization is best. This means if your credit limit is $20,000, ideally your balance should be $1000 when reported to the credit bureaus.
SOLUTION – With high credit card balances, you really only have one option - paying them down. As your balances decrease, your credit score increases. So, it is a very fast way to increase your credit score. If you have “good” credit, then you have another option – balance transfers. Many credit card companies offer credit cards that allow you to transfer your balance from one credit card to their credit card. A huge benefit of good credit is that they usually allow you to transfer with 0% interest for a given amount of time (typically 12-18 months). This means that you get a decent amount of time to pay down your balance with NO INTEREST! This will help speed up paying the balances down because you’re saving money on interest and in turn increase your credit score faster. This option is often abused, and people don’t take full advantage of it. Consulting with a credit agency on your best option is pivotal.
COLLECTION ACCOUNTS – The third scenario you may be in is being inundated with collection accounts on your credit report. Even just one or two collection accounts is enough to hugely affect your credit score. Collection accounts appear on your report when collection agencies report a past due amount to the credit bureaus. Typically, the balance is past due for about 120 days. Similarly, charge-off accounts are when the creditors report a past due amount to the credit bureaus, these have the same affect as collection accounts.
SOLUTION – When it comes to removing collections accounts fast, you need to be in a relationship with the Fair Credit Reporting Act (FCRA), you need to know it in and out and upside down. The FCRA allows us as consumers to dispute negative information (like collection accounts) from our credit report. This act also requires the credit bureaus to report 100% accurate information on our credit reports. Just because you owe the collection agency or creditor, it does not mean that the account is being reported correctly. Putting this in the hands of a certified credit consultant allows you to get the best results when disputing which means it is more likely the collection account will be deleted from your credit report – in turn, increasing your credit score!
You might be reading this and think “well damn, I’m in all three scenarios at the same time!”; in that case, working with a certified credit consulting company may be your best option so that they can create a customized plan for you as well as do majority of the work! Remember to check reviews, credibility and look out for our future blog post regarding credit repair companies.