Whether you have made poor financial decisions in the past or simply been the victim of uncontrollable conditions like the COVID-19 pandemic, beginning the procedure of rebuilding the credit can feel hard and difficult.  But several people have successfully rebuilt their credit before, and you can too. You require time, patience, and some smart decisions. Masters Credit Consultants have put together this expert guide on how you can build your credit if you have bad credit.

Make on-time payments

Payments made more than one month late will go on your credit report and stay there for up to 7 years. Even if you are 1 day late, your creditor can charge you a penalty fee at their discretion. By making all your payments on time, you will assist keep your credit score high and avoid paying unnecessary fees. One way to help maintain consistent on-time payments is enrolling in automatic payments with every one of your billers. Ensure to have sufficient funds available in your account at the time of payment so you do not incur overdraft fees from your bank. If you are sure you can avoid those fees, automatic payments are the best tool to help you maintain on-time payments.

Do not take on more debt

Your total debt, involving your credit use ratio, makes up 30 percent of your credit score. So, if you are struggling with debt, one of the worst things you can do is dig yourself into a deeper hole. Avoid opening new lines of credit unless your condition improves. One exception to this rule is a debt consolidation loan, which includes opening a new account to pay off and close any existing lines of credit.

Understand Your Risk Factors

When you request your free credit reports from AnnualCreditReport.com, you receive the report. You do not see your real credit scores. But for those who want to importantly increase their scores, buying a full credit report with scores can be beneficial. Experian, TransUnion, Equifax involve a list of risk factors along with purchased scores. Your credit score takes into consideration as several as 300 risk factors and knowing what your risk factors are will allow you to know where you can make improvements.

Manage Your Credit Utilization

After payment history, the next most important factor in your credit score is the amount of debt. Since credit reporting agencies do not have your income info, they use a factor known as credit utilization rather than a debt-to-income ratio. Utilization represents 30 percent of a FICO credit score. Utilization is the amount of debt outstanding on your revolving credit sources such as credit cards or house equity lines in relation to your available credit. Have a $4,000 balance on a credit card with a $10,000 limit? Then you have a 40 percent use ratio.

Get a secured credit card

This product is for people who want to build credit from scratch. If your credit card accounts are closed, you might need to begin over with a secured credit card. These cards need a deposit upfront. That deposit is your credit limit, but then they work like any other credit card. Select one from an issuer that reports payments to all 3 major credit-reporting bureaus.

Get a credit-builder loan or secured loan

As the name recommends, a credit-builder loan has one purpose: to help you improve your credit profile. You are most probably to find one at a credit union or community bank. You will need to be a member or consumer, and you will have to show proof of income and capability to repay. The lender holds onto the money as you repay, then releases it to you once you have completely repaid the loan. If you have money on deposit, you may be capable of borrow against that with a share or certificate-backed loan. It is a type of secured loan, that is backed by money in your savings. The bank or credit union puts a hold on the money unless you repay. A few financial institutions release the funds incrementally as you pay down the balance. Your payments are reported to the credit bureaus, so make sure to pay on time a late payment will damage your credit.

Become an authorized user

You can ask some person to add you as an authorized user on his/her credit card. Your credit benefits from being on the account; you do not have to make any changes or access the account. Some cards let initial cardholders set spending limits for authorized users, which can make the account holder feel further comfortable about adding you. You can ask someone to add you without giving you a card or card number.

Get a co-signer

If you cannot access credit, ask a friend to co-sign a loan or credit card. It will be a big favor: You are asking this person to put his/her credit reputation on the line for you and to take full responsibility for repayment if you do not pay as agreed. The co-signer may be turned down if they apply for further credit later because this account will be considered in assessing their financial profile.

Remove negative inaccurate items

Millions of Americans have errors on their credit score that’s the main cause for a low score. It pays to hire a professional credit repair company such as Masters Credit Consultants to expertly navigate through this removal process.