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Rebuilding Credit: What You Should Know

By: Michael Millington

While debt can come in all shapes and sizes, one happening is quite common when you fall into massive amounts of debt: your credit suffers. Harboring debt for long periods of time will eventually affect your credit report. One of the major factors in calculating your credit score is based on how much debt you have. Depending on the amount of total credit you have available to you, the amount of debt you have might impact your score a little or a lot. If you’ve had your credit take a nosedive on you, there are a few ways to help put you on the path towards rebuilding credit.


Rebuilding Credit: Getting Professional Help


Rebuilding credit can be a lengthy process. The main goal when rebuilding credit revolves around lowering your existing debts. Since the amount of utilized credit greatly impacts your credit score, having this handled would result in a great positive uptick for your credit record. Credit usage accounts for 35% of your FICO score. It’s more than one-third of your score and is the biggest factor in regards to your credit. In many instances, some form of professional help can be instrumental in rebuilding credit.

There are multiple companies and legal firms who are willing to help individuals rebuild their credit. They may provide services that investigate claims on your credit report that lead to lowering your credit score. While credit bureaus strive to provide accurate information on your credit record, there are times when information can be missed or misrepresented. While you can bring these misgivings to the attention of the credit bureaus, most credit help companies will make sure these marks are removed from your credit record through persistent contact with the bureaus.


Rebuilding Credit: Doing It Yourself


Rebuilding credit on your own can take some time, but it is possible. The main difference is the amount of work you would have to put in to achieve the same goal. Rebuilding credit would involve paying off debts and monitoring the amount of credit that is utilized. In order to achieve the same exact result, being in contact with the credit bureaus to correct any wrongly listed negative actions on your credit report.

Most people try to rebuild their credit on their own, looking to find all of their debts to eliminate them and bring their accounts current. While this is a large part of credit repair, there are also other methods that can help towards rebuilding credit. If you have any court rulings against you, clearing those up would have a positive effect on your credit score. Also, looking to increase (and diversify) the types of credit accounts you have to your name.


Rebuilding Credit: Things to Look Out For


One of the things that can either help or hinder your efforts in rebuilding credit is the use of debt relief services. Many forms of debt relief can have an adverse effect on your credit report if embarked upon. The most serious (and perhaps most well-known) of these services is bankruptcy. Filing for bankruptcy can be a surefire way to get yourself out of debt (should the debt be unsecured). However, a bankruptcy can stay on your credit record for up to ten years. During this time it can be exceedingly difficult to apply for new forms of credit or to improve upon your credit score in any way.

Other forms of debt relief that can result in fluctuating credit scores include debt settlement and debt consolidation. Debt consolidation can have an adverse effect on your credit score due to the fact that it involves taking out a loan. While adding to your credit limit overall can be a good thing, most of the time a debt consolidation loan will only be bestowed upon those who have immaculate credit scores. The only hit, if any, would be a small deduction for the resulting hard inquiry.


Be wary when undergoing the process of rebuilding credit. The main goal is to have your credit report as clean and issue-free as possible. Paying off your outstanding debts while monitoring the items on your credit report will be a big help. Rebuilding credit can be a lengthy process, indeed, but dedication to the goal (with or without help) will usher you towards debt freedom and a great credit score.