5 Important Things to Keep in Mind When Rebuilding Your Credit

Last month, an Associated Press poll showed that most Americans are returning to normal life for the first time since the pandemic began. Covid presented unique challenges, but also unprecedented opportunities for those interested in rebuilding their financial lives. The number of Americans starting a new business hit a record. Personal savings also soared, thanks to stimulus payments, a moratorium on paying student debts, and foregone spending on luxuries like travel. 

One credit expert says that the pandemic has created the perfect opportunity to rebuild credit as the foundation for a brighter — and wealthier — future.

“As a consumer or business owner, great credit gives you access to unlimited potential,” says Keritan Shelby, CEO of JMS Consulting Firm, a business credit and credit repair firm he founded just two years ago. “As millions of people switch jobs, start new businesses and/or side hustles,” he adds, “it’s important to keep in mind five principles of credit repair.”

1. Don’t expect immediate results

If you file a dispute against a creditor, typically one of the first steps of rebuilding a credit profile, Shelby says that you must allow 30 calendar days for that creditor to respond to the dispute under the Fair Credit Reporting Act.

The law is designed to give credit bureaus time to work with both creditors and collectors to investigate the accuracy of each account in dispute. 

Shelby advises patience and persistence. “Too many people become discouraged early on in the process,” he says, “but the law is the law. There’s nothing that you or a credit repair firm can do in those thirty days except wait.”

2. Change your habits

Sadly, the data shows that Americans’ savings habits have dropped back down below what they were before the pandemic.

This is due to both lower spending power and lower real wages; for these, thank inflation and the millions of workers who dropped out of the labor force in 2020.

But last month, the US finally gained back all of the jobs lost during Covid, giving the economy the equivalent of a fresh start. 

Shelby says that, if you weren’t making ends meet or living on the edge before, it’s critical that you change your spending habits now.

“Higher prices for things like gas, food, and rent mean that most of us will be tightening our belts more than we would have back in 2019.

Stop thinking about going back to normal and consider a new normal,” he advises.

3. Understand your credit score

Practically everyone has been told to “know their score,” but many of us are still falling far short. Many of Shelby’s clients simply assume that they know what makes a great credit score; if they’re already doing the right things, why bother checking in?

Multiple studies have shown that about 4 in 10 Americans don’t know their credit score, which is actually far lower than a 2015 Lending Tree study, so most of us seem to be getting the message. 

For those that haven’t, keep in mind that your credit score not only determines the credit you’re entitled to, but, more importantly, the price of that credit.

“It’s almost impossible to increase your score until you understand it,” Shelby says. “Knowledge is power and, in this case, money.”

4. Pay on Time

The most important factor of a high credit score is still paying on time. After all, if someone is going to extend credit to you (or your business), the first thing that they’ll want to know is whether or not you’re going to pay on time.

Shelby says that this is actually a good thing because it means that you can get the least expensive credit simply by holding yourself accountable every month.

Remember that creditors who don’t care if you pay on time — or don’t want you to pay on time — generally make their money on expensive (and often hidden) fees that can add up quickly and sabotage your rebuilding efforts.

5. Monitor your credit score but also your report

It’s always important to know where you stand. Yet, according to a Consumer Reports study titled “A Broken System,” more than one-third of us have uncorrected mistakes on our credit reports.

Shelby says that these errors could easily cost us thousands of dollars in higher interest rate costs and other fees.

Or, they might deny us the needed credit to grow or start a business. Taking control of our financial future increasingly means taking control of our data. 

“But,” he adds, “there is a silver lining here too: access to your report is free, and you should be able to score some easy wins right away. After clearing away the clutter, you may find that you’re already on the road to financial success.”