Budget setbacks can happen at any time, whether it’s unexpected bills, expensive repairs or the loss of a job. These financial situations can lead to bad credit or financial instability.
Having a bad credit score can affect your loan, mortgage, or job application. A bad credit score is seen as a sign of lack of discipline in credit behavior, which lowers your chances of availing loans.
You might end up paying higher interest for sanctioned loans. The good news is that there are companies that offer personal loans for bad credit. However, be sure to conduct thorough research to identify a reputable lender in your locality.
Nevertheless, it is important to identify ways to bounce back from a bad credit score. It would be better to understand that rebuilding your credit is more difficult than starting from scratch.
You are trying to show credit card issuers, lenders and employers that you will be able to have better financial management in the future despite your current situation. But before you begin the process of rebuilding your credit score, it’s essential to make sure you understand your current score.
Below are some tips you might consider using to rebuild your credit score. They understand:
1. Take stock of your debt
Taking stock of your debt will make it easier for you to know how much you owe and how much interest it’s costing you. You can easily decide where you should start focusing your efforts and the best strategy for paying off your debt. This includes:
Debt Snowball – This debt repayment strategy allows you to gradually repay the smallest to the largest debt. This way, you will make progress sooner.
Debt Consolidation – This strategy allows you to consolidate all your debts into a single loan with a single interest rate. This will make it easier to pay and track your various debts.
Avalanche of debt – In this method, you will prioritize paying off the debt with the highest interest rate. This is an ideal route to save time and interest on your debt repayment journey.
Do extensive research to identify the best strategy for paying off your debts. Paying off your debt will influence your credit score, making it easier for you to get a low-interest loan or mortgage.
2. Refrain from submitting multiple credit applications
Each time you apply for a loan or credit card, the issuer will assess your creditworthiness using your credit report. Such lender-initiated credit reports can lower your credit score by certain points.
So, if you apply to multiple lenders, especially in a short period of time, it can negatively impact your credit score.
To avoid this, visit various online marketplaces to compare loans based on your credit score instead of applying for a loan directly from multiple lenders. Although these marketplaces may retrieve your report from a credit bureau, this will not affect your credit score as these are unauthorized requests.
3. Set up automatic payments
Several factors can affect your credit score. They include late payments, credit usage, etc. Thus, on-time payments will play a huge role in improve your credit report. Automating your payment will ensure you don’t miss any payments.
Features like autopay are generally available for most bills and let you set a date each month to automatically use funds from your bank or credit account to pay bills. This will help you avoid late payments, which will help rebuild your credit score.
4. Develop a financial cushion
Developing a financial cushion will ensure you have a reliable way to pay for unexpected expenses if your savings fund isn’t enough. So your rainy day fund should include backup options beyond a savings account.
Including a contingency funding option in your emergency plan will make it easier to access sufficient funds to meet unexpected bills.
If your fund is low, it’s important to improve your savings rate, to ensure you have a steady flow of funds to cover emergencies.
This is another trick you can use to tackle your debt. Be sure to conduct a thorough audit to understand where your money is currently going. This will make it easier for you to assess whether your current budget meets your financial goals.
For example, if your goal is to pay off debt, but you find yourself spending money on other things like shopping, it’s time to re-evaluate your budget. This will help you avoid accumulating debt, which could affect your credit score.
There are several ways you can use to improve your budget. For example, 50-30-20 budgeting is a strategy that helps you divide your income into essentials, wants, and savings. You can also use several budgeting apps to reassess your spending and improve your credit score.
As stated above, bad credit can affect your loan or mortgage application. You could end up paying higher interest, which would affect your savings margin. For this reason, it is important to identify ways to increase your credit score.