How to Rebuild Credit

Your credit score and credit history can have a huge impact in many areas of your life. Intended to serve as a benchmark of your financial fitness, your credit score is used by all types of lenders to determine your worthiness as a borrower. This is an especially important factor used by mortgage lenders to determine if a candidate is approved for a loan or not. In this week’s blog from CalStar Mortgage Inc., we’ll discuss how to rebuild credit to get approved for a mortgage or another purpose. If you have questions, we’re happy to help. Contact us in La Cañada Flintridge, CA, and schedule a consultation today!

Understand and Monitor Your Credit

The first step in rebuilding your credit is to understand it and carefully monitor it Thankfully today, there are several free websites that allow you to check your credit scores from the three major credit bureaus – Equifax, Experian, and TransUnion – as often as you like. Many credit card companies, too, allow you to see at least one of these scores. Credit scores are populated from several different factors, some of which are weighted more than others. From most to least important, they are: payment history, credit usage, length of credit history, types and number of credit cards and loans, and number of credit inquiries. Once you understand these different factors, you can begin to monitor how different changes affect your score and act to improve any areas of weakness. Keeping careful track of your score will also help you catch any giant changes in your credit that may be a sign of an error on your report or malicious activity.

Pay Down Debt in a Focused Way

Another important way to rebuild credit after a financial misstep such as bankruptcy or foreclosure is to focus on paying down debt. This may seem like an obvious tip, but it’s one of the most important. It is essential that you do not miss any payments on any open credit cards or other loans. If you have several accounts with debt, focus on paying off one account at a time (while still making at least the minimum payment on each card), starting with the account with the highest interest rate.

Keep Your Credit Accounts Open

Once you have paid off a credit account, you don’t necessarily want to close the account. Since credit usage is one of the factors that affects your score, keeping open an account with a high limit – and no balance – helps lower the ratio of how much credit you’re using versus how much your limits are.

Get a Secured Account or Co-Signer

If you do not have any open credit cards, possibly due to them being closed after bankruptcy, you may want to get a secured credit card to help rebuild your score. Secured cards require that you deposit money up front as collateral. It’s very important that if you do open a new secured card that you pay it off each month entirely. There’s also something known as a credit-builder loan, which you may be able to get from a credit union or local bank. Another option is to get a co-signer on a credit card or loan, who can help you get approved for a loan that you may not be eligible for on your own.

Small Steps Make a Big Difference

Rebuilding credit takes time, but with focus, determination, and a few right moves, you can begin to raise your score to get qualified for a mortgage or any other financial goal. When you’re ready to learn more about how to rebuild credit, there are many resources available to you. There are several free credit counseling services that you can research online. We also invite you to contact our team at CalStar Mortgage Inc., where we can provide some additional insight about your individual situation. We’re located in La Cañada Flintridge, CA, and we’d love to hear from you.