Credit is essential in today’s economy. Just a few small decisions can damage credit while rebuilding these numbers can take forever. However, rebuilding credit is not impossible. It will take time and effort, but eventually rebuilding credit can yield results. Here are four factors in rebuilding credit:
Get Current on Bills
If you have overdue bills, work on getting them current rather than paying off collections accounts. It is an unfortunate fact of the way the credit reporting system works, but once an account goes to collections, it will stay on your credit history for seven years regardless of whether you pay it off. On the other hand, preventing other accounts from going to collections will do a lot to prevent your credit score from dropping.
For example, suppose you have an overdue credit card and another credit card that has gone to collections. The credit card in collections has already damaged your credit score and paying it off will do little in your efforts at rebuilding credit. If you focus on paying off the bill collectors rather than paying off the overdue credit card, you will end up with two collections accounts even after you pay off the bill collectors.
However, keeping up on the payments for your overdue credit card means that you have zero overdue bills and one collections account. This is much, much better for your credit score than two collections accounts.
Reduce Reliance on Credit
Americans rely heavily on credit. In fact, nearly 160 million Americans have credit card debt. Most Americans do not realize that this use of debt may be lowering their credit scores.
Up to 30% of your credit score is based on your utilization of available credit. This means that too much leverage will reduce your credit score. For example, if two families have credit limits of $10,000, the family with credit balances of $2,000 will have a better credit score than the family with credit balances of $5,000 even if everything else, like income and overdue bills, is the same.
This means that purchasers who rely on credit for large purchases and carry those credit balances will have lower credit scores than purchasers who use cash or flexible lease-purchase programs for large purchases. Thus, using conventional store credit or credit cards as finance options for large purchasers can actually lower your credit score even if all the payments are made on time, merely because of the credit utilization.
Pay Bills on Time
Keeping accounts current can have a large impact on your credit score while you are rebuilding credit. However, this creates a bit of a conundrum because you cannot stop spending on essentials. For example, if you need to replace your furnace, you cannot allow your family to freeze while you save up the money to pay cash for a furnace.
This is where lease-purchase programs can help you to purchase essentials while rebuilding credit. A lease-purchase program is a form of no credit needed financing in which the leasing company purchases the furnace on your behalf, then leases it to you for a fixed, recurring fee. When you make all the payments called for in the lease agreement, you own the furnace. Moreover, making all the payments on time will be recorded in your credit history, further boosting your credit score.
Rebuilding credit is not impossible. Talk about how you can start rebuilding credit with Okinus today.
