A loan is an immense help to raise funds and meet the personal needs of borrowers. However, seeking a personal loan with bad credit is challenging. Thus, the borrower ends up with rejection. This doesn’t mean one can never look up for a loan. Here, borrowers need to follow some essential tips to improve their credit scores. In this article, readers will learn from scratch to rebuild the credit.
Step1: Pay Attention to Credit File
Once the accounts are opened, the borrower’s details are reported to the concerned credit bureaus of the financial institution. From day one, the borrower has to maintain the credit file as the authorities pay close attention to every holder’s account. For a better credit score, one can collect the rewards based on credit card usage, which is highly useful when opting for a personal loan.
Step 2: One Must Not Miss Payments
Payment history also plays a pivotal role when it comes to analyzing credit scores. The long history of payments can either help the borrower to achieve excellent scores or vice-versa. Many rejection cases were reported in the past for the borrower going for an SBA business loan and home loan. There is no shortcut to ameliorate the bad credit score. All one can do is to ensure to not miss loan or credit card payments over 29 days or the deadline offered by the lender. In case of any trouble during the processing of the bill, it’s better to reach out to the credit card issuer timely to avoid such hardships down the road.
Step 3: Get an Effective Debt Management Plan (DMP)
Another productive step to polish up the bad credit is to proceed with a credit counseling organization. Late payments show up prominently for up to 5 to 7 years. Plus, this makes it burdensome for the borrower to get the loan approved despite making payments. A borrower has the option to get the DMP by consulting a credit counselor. The counselor may provide low-interest net credit loans for bad credit.
Step 4: Use of Revolving Account Balances
The next trick is to have a high balance on revolving credit accounts. This can boost the borrower’s credit utilization rate. The rate is calculated by the lenders by comparing how much the borrowers owe and dividing the amount with the credit limit. This may require credit cards or lines of credit to set the credit limit. Therefore, improve the credit scores.
Step 5: Limit the Number of New Accounts in Same Bank
The day one opens the account for building a credit file, the account holder will be certain to a credit limit. Perhaps, opening new accounts can hurt the scores a little. In other words, the opening of new accounts can impact the average age of accounts which lowers down the scores. For instance, a borrower has two accounts in the same bank, one he opened 3 years back and one 5 years ago. The calculation of the average age of the account will be 4 years. This will shatter the credit limit.
At Last: How Long Does it Take to Rebuild a Credit Score?
Usually, there is no set timeline to rebuild the credit. Perhaps, it depends on one’s credit scores and what steps are implemented to increase the credit. There can be chances where the borrower might need professional assistance to make the process slightly fast and accurate.