Rebuilding credit is a process
Image Source: Flickr User Benjamin Canizales
Younger Millennials often struggle with low credits scores because they’re new to the credit game, and those that file bankruptcy are at a reset point. While it may not seem like these two financial profiles have much in common, they actually do. Both Millennials and post-bankruptcy consumers can take the same approach to fix their low FICO score.
How Credit Scores Work
Your credit score is a number—a calculation based on information on your credit report. There are five components to the credit score calculation:
- Payment history—Whether you pay bills on time that report to the credit bureaus
- Balances—How much you owe and what percent of your credit lines you’re using
- Length of history—How long your credit history has been in use
- Credit blend—How many different types of credit you have and are using
- New accounts—How often you open new accounts
Bankruptcy filers and Millennials might have low balances, but the rest of the score factors may have little or no information to build on and contribute to your score. It can be hard to rebuild because the lack of a decent credit score in itself is an obstacle.
But there are prescribed steps to take to fill in the gaps for both of these consumer types—Millennials and prior bankruptcy filers—in order to rebuild credit scores and get you on the road to a brighter financial future.
Steps to Establish or Rebuild Your Credit Score
For both young Millennials and those coming out of bankruptcy, it will take time to build up a good credit score. It’s a process, not a simple procedure, and it will take some time. You must be diligent and work hard, but it can be conquered.
#1 Get a Credit Card
You won’t be able to run out and get a credit card with a high credit line from a top card issuer—not at first. But you can get a credit card. Start with a secured card. Research which secured card issuers will approve a card based on your specific criteria and apply.
Find out if someone, like a family member, will add you as an authorized user to their credit card account. This can help bump your credit even though it’s not your account. This works equally well for post-bankruptcy filers as well as young Millennials.
#2 Use Credit R
esponsibly
Once you have a card, you need to use it regularly, never max it out, and never pay a payment late even by a day. Just getting a card and sticking it into your wallet won’t work. Using it often and then paying off in full each month is a better way to go.
Monitor your credit report, and when this card improves your score, apply for an easy-to-get unsecured card. Store cards may be easier to get, and there are plenty of websites that track the criteria for card issuers so you can apply only to those you know will approve you.
#3 Build Slowly and Monitor Constantly
Improving your credit score is a process that will take time, but it can be done. The main thing is to realize that you have to work at it. Sign up for a credit monitoring service so you will always be on top of your score. Check all three reports often to ensure accounts are reporting there.
Set up an alert on your monitoring service to ensure you’re notified of updates so you can keep your report error-free. When your credit score improves, take the next step to get new cards or financing to keep all five areas of your score calculation constantly improving.
To find out more about rebuilding your credit score after bankruptcy, contact Credit Score Keys today.