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Ways on How to Reconstruct Your Credit

Ways on How to Reconstruct Your Credit

Published by Programme B

It is vital to keep an outstanding credit score. It is one of the many important factors that lenders use to determine your creditworthiness. Having good credit means you have been honoring your financial obligations, and hence you are not a risk to the lender. Since interest rates are usually determined by considering the creditworthiness of an individual, an impeccable credit record will earn you low-interest loan rates.

Lenders would want to know how reliable you are and what do you have that proves you are reliable and as well as a person who honors debts.  Some insurance providers will also check your credit score when evaluating the premiums, you will be expected to remit. Also, your subscription provider would check if your score is good enough so that they can either demand a down payment or not.

Factors that influence credit ratings

Your credit can be affected by a host of elements. Below are some of the factors that affect your credit.

Payment records.

This is the history of all the credit payments you made in time, late and missed or defaulted. The amount submitted in time has a good effect on your credit score. The rest do not bore so well with the lender. You are likely to reduce your score significantly if you are late on a payment. Defaulting on payment is not a good indication – if you find yourself constantly doing this, you may wish to speak to someone like this business bankruptcy attorney in Harrisburg to see if there is a way that your debts can be restructured so that you are able to make payments and take steps towards clearing your debt. Depending on the amount and type of the loan you took out, you may be blocked entirely from accessing credit.

The ratio of credit utilization.

This ratio tries to compare how much of your credit limit amount available for you is actually in use. To compute your rate of utilization, simply take your credit usage, divide it by the credit limit and then multiply by 100. You will have calculated the ratio in percentage. You should focus on having a lower percentage since a lower rate implies that you have proper utilization. This is further interpreted that; you can do well with the little provisions on your credit and you do not rely heavily on credit for survival. High percentages, on the other hand, indicate to lenders that you bear a payment risk.

Borrowers with lower credit balances are more likely to honor payment schedules than those with substantial balances on their accounts. Therefore, a lender would be unwilling to extend one’s credit balances for this simple reason. Furthermore, high balances indicate that your income is a little short, and you rely heavily on credit to supplement your ballooned expenditure patterns. Hence you are a significant risk to the lenders.

Total credit owing.

The total debt you have affects not only your life but credit score as well. If your loan debt is extraordinarily high, your chances of being approved for a loan, a credit card increase or an additional loan are lean. Even if your income is more compared to your debt, your credit score determination does not depend on income. It is your payment ability that is put to the test here. After your utilization ratio is determined to be high, your lender will raise a red alert about your payment ability. Higher balances affect your credit negatively.

Credit Mix

Refers to the different variety of loans in your borrower’s portfolio. Credit mix accounts for at least 10% of your credit ratings. Juggling multiple types of loans demonstrates that you can comfortably handle many loans, which therefore attracts a high credit rating.

Credit history.

A long history with the lenders will bore well with your credit rating. Lenders usually consider how long you have been actively involved with credit services, basing on the age of your oldest active account. A young credit account, on the other hand, would drag your credit rating down since it reflects a shorter time with your lender.

Hard credit inquiries.

Hard inquiries occur when you submit an application for a loan or insurance. The lender or the insurer has your permission to dig out your credit history to ascertain if you are creditworthy. Usually, hard inquiries have a credit point drop of about 9 – 10. Multiple checks within a short time frame further dent your scores by a similar point per search.

Public records.

Your public records include; court judgments and bankruptcies. When taken to a civil court on the grounds of financial misconduct, or you are declared by the jury to be bankrupt, then your credit score dwindles. 

Rebuilding your credit

Reconstructing your credit involves looking at the above factors that affect them and ensuring you are on the right side of events. Some of the steps you can take to improve on your credit include.

Pay your monthly bills on time. Consider also setting up automatic payment accounts so that when you forget to remit the payment, you will not be marked as late.

Lower your credit utilization percentage. Make sure to pay up your credit balances to keep them on a low. Also, if you close one of your credit accounts, you are reducing your credit score.

Opening a secured credit account can help boost your credit history.

Your family could be your guarantors or help you open a joint account which would increase your chances of improving your credit scores.

Opening new credit accounts have a bad bearing on your credit. Every time you apply for credit or open another account, your lender carries out a credit inquiry that affects your credit rating negatively.

The Bottom Line

A bad credit rating is a recipe for loan denial. You run a serious risk of being denied a credit card limit improvement and your lender credit limit increases. You have the complete responsibility and power to keep your credit scores in the healthy zone. As long as you follow the steps provided and more that you will get from your lender, you have no fears of credit downsides. Furthermore, if you realize your loan balance is getting out of hand, talk to your lender to impose an expenditure cap or visit You may also engage your financial consultant to come up with compelling ways to mitigate such a situation.