Rebuilding Your Credit

So you just got into your mid 20’s and are getting ready to enter the next stage of your life. You have been hearing about real estate and finally decide to pull the trigger - but there is an issue. Your mortgage broker tells you that unfortunately your credit score is bad and it wont allow you to buy your first home!

There are many ways that having a bad credit score can hurt you. But let's talk about how you can build it up instead. Before we get into these quick tips I would encourage you to take the time to forward this to a friend who needs the help. Also if you’re a parent this is a great point of financial literacy to teach your kids. Alright, Lets get into it!

How to use credit: It is a great practice to have two sources of credit and use them regularly! It sounds weird but using credit tells a great story and that’s really what your credit score is. The story that is being told to potential lenders when you need their money. The key here is to not pay off the balance immediately but don’t let it sit for more then 30 days.

Cut the card: I sometimes hear from a client that has managed to get out of debt. “you should be proud I paid off my card finally and I cut it up and cancelled it” You should know that when you do cancel your card then the history you worked hard for is gone as well. This can have a negative effect on your credit score

Credit checks: Every store you go to always wants to offer you some type of card but the trick is you need a credit check. There are certain credit hits that impact your score more than others. Watch out for these ones: borrowing money from lenders, getting a mortgage, applying for credit card, car loan, payday loans, cell phone.

How to re build your credit: What if it's too late? Here are some tools you can use to rebuild your credit score:

  • Secured credit card – you can get these from certain banks, it provides a limit of $500-$1000 and is made for you specifically to get better credit.

  • Pay off your debts – Nothing is better than paying off the thing that is hurting your score. You may find that as you start paying these back your score will start going up even though you haven’t cleared all the debt.

  • Don’t apply for new credit – If you have a goal in mind (getting a mortgage) Don’t stop this process of building your credit score until you can get that goal. Don’t let small pleasures distract you from that goal. A new cellphone or putting a vacation on credit card can take you right back to the start.

  • Communicate with lenders – Pick up the phone and call the company you owe money to. You would be surprised how often they are willing to help. The fact is that they want their money back and don’t want you to have a bad credit score because that means that they cant lend money back to you. Get on a payment plan and watch your score increase.

I hope these tips will help you achieve your goals! Don’t hesitate to reach out with any questions you have, and if you don’t already track your credit I personally use and it provides me with monthly updates and suggestions to keep on my path to great credit.

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