Successful debt repayment is truly a cause for celebration. But before you go out and celebrate, don’t forget that your former debt has had an adverse effect on your credit score.
In 2023, 73% of Indians were self-monitoring their credit, and there is no reason why you should not do the same. But simply monitoring your scores is not good enough because now it is your time to get those scores on the track of recovery.
So, how can you rebuild your credit after debt repayment? Fortunately, there is more than one way to do that, and this I will walk you through those ways in detail. Make sure you continue reading!
Steps To Rebuild Credit After Debt Repayment
Rebuilding your credit score after debt repayment is not that difficult as long as you take the right approach. My experience with finances has taught me enough to help you here with some essential steps.
Step 1: Start Working on Your Credit History
What is the first thing the lender will ask for when you go to ask for a loan? Naturally, they will ask for your credit report, which makes it very important that you start working on enhancing your credit history. I would recommend that you make it a habit to pay all your bills on time and gradually enhance your credit history.
Step 2: Change Your Account’s Status To Closed
A credit card company will keep your account status as settled after you have repaid all your debt. But you need them to change it to close by paying all your debt once and for all. Thanks to the generic perception, most lenders are pessimistic about lending to someone whose credit card status reads settled. As a result, it will become much easier for you to enhance your credit scores.
Step 3: Lower Your Credit Card Use
The next thing you need to do is lower your credit card use as much as you can. I would recommend you set a target about reducing your credit card use by a certain percentage and stick with that target. Even if you have multiple credit cards, make sure to close the ones that you don’t use frequently. This will enhance your credit score gradually.
Step 4: Diversify Your Credits
Taking all your credits from a single source will definitely affect your credit scores negatively. Therefore, you must take a different approach and diversify your credit. This means you can use multiple credit accounts, such as instalment loans and credit cards, to enhance your credit. But again, if you are opening multiple accounts, make sure they have limited credit options.
Step 5: Don’t Apply For Any loans In The Meantime
The last thing you need to do is apply for a loan or even enquire about it after the settlement. Making this mistake will result in lenders making quick opinions about your credit-seeking habits. It is very important you remain patient in the meantime since a loan rejection will have an even more drastic effect on your credits.
Step 6: Monitor Your Credit Scores Regularly
The final thing you need to do here is monitor your credit score regularly and keep track of your progress. There is no shortage of credit monitoring services where you can easily enter all the necessary information and check your score in an instant.
Bottom Line
Settling your debt finally gives you the ultimate peace of mind. But now it is time to enhance your credit score and establish yourself as a reliable borrower. You can leverage the aforementioned steps to realize this goal along with other tactics such as credit counselling, debt consolidation, and more to maintain good financial habits.
