From Zero to hero: Rebuilding your credit score after financial hardship

As we are all aware, a credit score is vital for the approval of a loan. The higher the score, the better the chances of securing a loan. Conversely, you have fewer chances of loan approval when your score is low.

But the credit score is transient. When your score is low for the time being, it won't remain low forever unless you let it be. You may have faced financial hardships, which led to a poor score. How do you come out of it?

There are various ways in which you could rebuild your score after having gone through a slew of financial hardships.

These are some tips and tricks.

How to rebuild your credit score

Bring overdue accounts current: You could reach out to creditors to negotiate payment plans for outstanding debts, as bringing accounts up to date stops further negative reporting and can re-age the account (potentially shortening how long the late payment impacts your score). Prioritise high-interest debts or those in collections.

Dispute errors: First of all, you need to start by obtaining a free credit report. Then you can check it in case there are inaccuracies, such as incorrect late payments or accounts that aren't yours, and raise disputes online. This will remove unfair negative marks.

Special hardship programs: Many lenders provide temporary relief, such as reduced interest rates, waived fees, or lower minimum payments, during hardships. One could simply ask about these options directly. These could prevent further damage but may involve a temporary drop in your score due to account status changes.

Make sure to make all payments on time: Payment history is the key factor in your credit score. So you could set up autopay or reminders for at least the minimum due on all bills such as credit cards and loans.

Build positive history: If your score is too low for new unsecured credit, you could gradually build it by applying for a secured credit card or a credit-builder loan. You could use them for small purchases that are paid off monthly and avoid closing current accounts, even if they are old since the length of history matters.

Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.