Rebuild Credit Score

In the United States of America, unchecked recession cycles have resulted in several layoffs. A loss of regular salary meant that people were unable to make timely payment of loans and credit card bills. With every missed payment and default, the credit score came down by a few points. In the United States, there are three giant companies that report credit scores. These companies are known as credit reporting agencies or bureaus. Equifax, Experian and TransUnion cater to the needs of creditors by churning out credit reports. The mechanism of such reports is simple. Whenever you take up a particular loan or a credit card, the creditor reports it to the credit reporting agency. Creditors also report all your payments and defaults to these agencies.

A credit score that is present on the credit report is calculated by these agencies using standardized formulas, which are framed in accordance with the Fair Credit Reporting Act. Credit score formulas are supplied by a company by the name, Fair Issac Corporation. The 3 credit reporting agencies usually consult the mathematical models by FICO in order to calculate credit scores. Some prominent credit score formulas include Beacon, Vantage score and NextGen score. Thus, at the end of the mathematical calculation, your credit score shall range between 350-850, with 850 being the best and 350 being the worst.

How to Rebuild Credit Score Fast

The term 'fast' should be read as 'within one year', because rebuilding credit score cannot be done instantly or within a few days time. One year may seem a very long time, but a good credit score has several advantages of its own such as low rate of interest or absolutely no credit denial. If you are trying to improve score after bankruptcy or foreclosure, then it is going to be really tough, but if you take some really effective steps, it can be done quite easily. Here is a small step by step elaboration.

• Observe and Conclude: The first step that you need to take while rebuilding your credit score is observe and conclude. Get all three credit reports, all your bank statements and finally your credit and loan agreements. Now audit all your credit-related transactions. In order to observe all your credit-related transactions, list out the following: 1. How much have you borrowed. 2. For how many years/months has the loan been borrowed. 3. What is the rate of interest. 4. How much have you paid. 5. How much do you need to pay.
• Credit Report Dispute: Now, there is a high probability that you will find an error or two in your report. Here you can politely initiate a credit report dispute. The easiest way to do so is to write to the credit reporting agency and supply a sufficient amount of proof regarding the mistake.
• Pay off the Debts: The next step is a very important one as you will have to pay off all outstanding debts. Outstanding debts which have piled up are unhealthy for your credit score and repaying them is very important.
• Increase the Credit Score: The last step is to increase your credit score. Repaying the debt takes about 6 months and you can easily employ the remaining six months to increase the credit score. For this purpose, cancel all credit cards that you cannot afford and take up one or two credit cards such as secured credit cards. With the help of just one or two credit cards, you can easily make payments to credit card companies, perfectly on time. Such payments eventually leads to an increasing credit score.

You may get in touch with your lender, or credit card company, to get to know the increase in credit score with each timely payment. Another fact that I would like to add here is that, every timely payment increases your score and at the same time a late payment decreases it. Thus, ensure to make timely payments to build a good credit score.