6 ways to rebuild your credit after a setback
Rebuilding your credit can seem like an impossible task, but you can do it with a bit of effort and the right tools. One way to rebuild your credit is by financing a car with your bad credit through a credit restoration specialist. This will help you establish a payment history that will show creditors that you are responsible and can be trusted to make payments on time. There are a few steps to take to make this happen.
1. Get a copy of your credit report and check for errors: Dispute anything that shouldn’t be there. This includes errors in balances, a payment that didn’t record, or a bill you don’t recognize.
2. Make sure you have a steady income and enough money saved up for a down payment: You’ll need to prove your income for at least three to six months. Some dealerships and financing companies will require a longer proof of income. You can call ahead and ask what they will need with the application.
3. Shop around for the best interest rates and terms: You’ll want to start with your bank or credit union. After that, check with a credit restoration company that can help you find the best loan for your situation.
4. Be prepared to make a larger down payment and pay a higher interest rate: You can refinance later to bring down your rates or trade your car in once you’ve stabilized your credit.
5. Have a co-signer ready if you can’t get approved for a loan on your own: You’re not the only one struggling after a setback; thousands of people and businesses struggle to bounce back. Here are six more tips for rebuilding your credit in addition to a car loan.
1. Get a secured credit card
If you have bad credit, getting a secured credit card is one of the best ways to rebuild your credit. This type of credit card requires you to put down a deposit equal to your credit limit, which serves as collateral if you default on your payments.
Using a secured credit card responsibly by making on-time payments and keeping your balance low will help you rebuild your credit. After some time, you may be able to transition to a traditional, unsecured credit card.
2. Become an authorized user on someone else’s credit card
Suppose you can’t get a secured credit card or don’t want to put down a deposit. In that case, another option is to become an authorized user on someone else’s credit card. As an authorized user, you’ll have access to the credit limit on the card. Still, you won’t be responsible for making payments.
Becoming an authorized user can help you rebuild your credit as long as the primary cardholder makes their payments on time and keeps their balance low. It is common for adult children to become users on their parent’s cards, or someone can add their partner to their account to help bring both of their scores up with consistent payments.
3. Get a co-signer on a loan or credit card
If you can’t get a credit card or loan on your own, another option is to get a co-signer. A co-signer is someone who agrees to be responsible for the debt if you default on your payments.
Having a co-signer with good credit can help you qualify for a loan or credit card and begin to rebuild your credit. Remember, if you default on a loan, it will negatively impact your credit and the other persons. Ensure you’re going into the process with all the knowledge and open communication you can.
4. Use a credit-builder loan
A credit-builder loan is a type specifically designed to help people rebuild their credit. With a credit-builder loan, you borrow a small amount of money and agree to make regular payments over a set time. Once you’ve repaid the loan, you’ll have a positive credit history that can help you rebuild your credit.
Another form of the credit builder loan is to work with your bank making small regular payments for a set period. Upon completion of that payment plan, you gain access to the funds.
5. Make on-time payments
One of the best ways to rebuild your credit is to make all your payments on time. Whether you’re paying off a loan, credit card, or any other type of debt, being consistent with your payments will help you rebuild your credit. Medical debt and student loans are significant to stay up to date on.
All of your payments should be on time, not just the ones for debt. You and anyone co-signing with you should pay rent, utilities, and your monthly Netflix subscription on time. The goal is to show that you’re a responsible borrower who can be trusted to make regular payments.
6. Keep your balance low
In addition to making on-time payments, another way to rebuild your credit is to keep your balances low. This means using less than 30% of the credit limit on your credit cards and maintaining your overall debt-to-income ratio low. Keeping your balances low will help improve your credit score and rebuild your credit.
One way to ensure you’ve got regular payments and a low debt-to-income ratio is to put a small, consistent bill on your credit card and set it up for auto pay. Ensure you are putting money into the payment account to pay off the credit card before the end of the month, so you don’t get charged extra interest.
Challenges caused by bad credit
Bad credit can prevent you from many significant purchases and investments, such as purchasing a car or home. Working to improve your credit after a financial setback isn’t impossible, though it may sometimes feel like it.
Use the tips above to help you rebuild your credit and get back on track. Financing a car can help as well in establishing payment history. New car loan rates are at an all-time low, so now is a great time to finance a new car.