Simple tips for restoring bad credit

Credit scores are used to represent an individual’s credit-worthiness. In the American economy, the vast majority of people will need to utilize their credit score for one reason or another, whether it’s to get a car, a student loan, a credit card, or a house. However, bad credit scores are not uncommon.

There are many reasons that people end up with bad credit scores; mainly, they’ve skipped or stopped paying off financial obligations tied to their credit score. But other factors that influence your credit score include credit card utilization, long-term payment history, credit mix, and more. According to FICO statistics, roughly 11% of Americans have “bad credit,” while nearly 40% of Americans have “subprime” or “fair” credit scores. Both categories are disadvantaged when it comes to using their credit for anything from basic needs to luxury wants.

Fortunately, there are a few simple things you can do to improve your credit. Here’s what you need to know:

Consider Alternative Funding Sources

Keep in mind that while most tasks associated with credit-building are simple, many of them take time to go into effect. If your primary purpose of building credit is to secure funds for a large purchase that you need quickly, chances are you don’t have the time to wait to build your credit.

If this is the case, it’s important to consider the collateral and assets you have. For many individuals, a home is their biggest asset. If you’re a senior with majority equity in your home, you might look into reverse mortgages by All Reverse Mortgage. If you’re not a senior, you can look into home equity lines of credit. It’s also possible to use your car as collateral for different types of loans.

Explore each of these options if you need to get incoming revenue sooner rather than later. Often, you have much more at your disposal than you think.

Get a Secured Credit Card

Secured credit cards are guaranteed by assets, most often cash. Unsecured credits are not backed by any assets and are issued based on credit score and other factors, like income and expenses. Many people—even those with bad credit—can get a secured credit by paying for the line of credit amount upfront.

For example, if you’re approved for a secured card of up to $500, you could pay $200 for a secured card with a credit limit of $200. While this might seem counter-productive, it’s a great way to jumpstart your credit building efforts. Secured credit card companies still report accounts to credit bureaus.

Consider Experian Boost

Experian Boost is a unique feature that allows consumers to improve their FICO score by reporting their on-time payments for services that aren’t normally collected. This can include streaming services like Netflix, cable bills, utility bills, and other services.

When consumers add those records to their credit reports, they’re able to create a more positive outlook on their credit-worthiness and boost their FICO credit score in the process (note that this increase doesn’t apply to the two other credit bureaus, Transunion and Equifax). According to Experian, the average user that boosted their credit score saw an increase of 13 points, which can mean the difference between one rating and the next.

Always Pay on Time

On-time payments are crucial; payment history is the biggest factor when it comes to credit scores. Whether you’ve acquired a secured credit card or gotten a Boost because of your utility, on-time payments to all accounts can have a major impact. For instance, if you’ve added your cable bill as a self-reported item via Experian Boost, you’d need to make sure your cable bill is always paid on time. Same goes for any credit-related payments you’re making. Not only does payment history impact your credit score, but late payments stay on your credit report for several years.

Research Credit-Building Loans

Credit building loans work similarly to secured credit cards, and operate more like a “reverse loan.” With a credit building loan, you’ll work with a credit union or local bank to obtain a loan that you pay off before it can be issued to you. For example, if you’re approved for a $2,000 loan, you might pay $200 per month until the $2,000 is paid off. Once you’ve paid the loan fully, the full sum of the loan is released to you. Payments are reported to credit bureaus.