Paying off debt can be a gruelling experience. It challenges your patience, it pushes you to trim the fat on your budget, and then, after all of that struggle, you finally have room to breathe. 

The best part of all? Once you repay your debt, you can finally tackle all of the new things you want to put your money towards, such as saving for a down payment or travelling the world.

However, let’s not forget one last step that most of us might miss: rebuilding your credit. 

*lights fade, thunder crashes, the wine bottle is suddenly empty*

Before you have a mild (or major) panic attack because even just hearing the word “credit” makes your heart sink into your belly, it’s not as scary as you think. It’s also not as hard.

What is a credit score?

Credit scores are a ranking that determines how responsible you’ve been with your credit cards or loans. The scores range from 300 to 900. 

You’re likely at 300 if you’re just getting started building credit, and you’re likely at 900 if you’re the valedictorian of all things money. For the rest of us average joes, 650 is an excellent place to start – but 700 is even better.

Where can you check your credit score (for free)?

Before we get into the tricks and tips, you must know your credit score to see what we’re working with. Maybe you’re already doing better than you thought, or perhaps you’re doing worse than you thought. Either way – there is no point in guessing when we can find out for free.

You can currently find your credit score on the following sites:

• Equifax

• Credit Karma

• Borrowell

Who decides what your credit score is and how?

Credit bureaus are the places that determine your score, and they have a few categories that they monitor to see where you stand. Because we use money and move money around so frequently, your credit score can change many times over a few months. 

Let’s break down the five categories that credit bureaus use to determine your score. The percentage next to each category is how much this factor wagers into your final score.

#1. Your payment history (35%)

Payment history is exactly how it sounds. Credit bureaus will determine whether you pay your bills on time, if you’re ever late to make payments, and whether or not you have any delinquencies. Delinquencies are late payments or missed payments. Even one late payment can impact your credit score, which is why it’s essential to do your part to make payments on time and in full.

#2. Credit utilization (30%)

Credit utilization is the amount of money you owe versus how much debt you can access. If you owe more than 30% of your credit limit, they’re going to call that “bad news bears.” For example, if you have a credit card with a $1,000 limit and owe $500, but can’t afford to pay the total amount off right away, try to at least get the amount under $300.

#3. Length of credit history (15%)

More often than not, credit bureaus base your score on how long you have had credit for, used it for, and how responsible you’ve been with it. So, “make good choices” is a critical saying when using debt to pay for items.

#4. New credit (10%)

Every time you apply for another credit card, a loan, a mortgage, or any other lending option, you’re at risk of lowering your credit score. That’s why, when you open a new account or go to purchase a vehicle, lenders sometimes advise you that the credit check may temporarily impact your credit score. Try to be cautious with how often you are applying for new cards or other forms of debt, as it may make you look desperate (and no one wants that).

#5. Types of credit (10%)

Although it’s not always a good idea to carry a lot of debt, for some reason, credit bureaus weigh the different types of debt you hold into consideration when ranking your credit score. I’m not particularly eager to spend too much time on this one because I’m honestly unsure how much of a difference it makes, but if you have a car loan and a credit card, and you’re making regular payments on time. Good for you!

How do you rebuild your credit score?

Bouncing back from bad credit (which you most likely have after years of ignoring your debt) can be easy, especially since you’re already taking the appropriate steps to set yourself up for financial success by paying off what’s left of your debt.

When it comes to any financial task, tackling everything all at once can make the process feel overwhelming. For that reason, the best thing to do is break down each step into a small and tangible action.

Always make your payments on time

Being late for payments on credit cards and loans is always the number one downfall of a credit score, as it is worth 35% of your total. Never had delinquency? You’re a rock star. Maybe had one or two? That’s okay! Just ensure that you don’t let it happen again. Plan to make a payment on the 1st of every month, or (even better) set up automatic payments.

Be aware of your credit limits

Did you know that credit bureaus care how much debt you hold on your cards or loans? It turns out that “credit utilization” is worth 30% of your total score. If you keep your used credit at less than 30%, you will be on your way to getting that A (rhymes are cute)!

How long have your accounts been open?

Before you finish paying off your debt and vow to cut that credit card up because it’s what got you into this mess, think! How long have you had this credit card or line of credit? The card that you have had around the longest is the one that is going to help you the most (potentially). Credit history is worth 15% of your overall score, and the bureaus would prefer your accounts be open for a minimum of six months to collect data.

Don’t apply for any more credit

Every single time you apply for a new line of credit, credit card, or loan, you’re at risk of jeopardizing your credit score. A soft inquiry (you checking your score) is fine, but a hard inquiry (potential creditor checking) may not be. 

Just be smart!

I know (believe me, I know) that credit scores and credit, in general, can be boring to learn about, but you must know the basics. If you want to take out a mortgage one day, you’ll need to have a good credit score or be capable of getting there.

Since you’ve been patient as you’ve continued to make payments on your debt, it won’t hurt to be patient while making changes to improve your credit score either. So say “SEE YA NEVER” to that bad credit score, and “HELL TO THE O” to that high ranking we’ve all been dying to get.

Have you checked your credit score yet in 2021? When do you normally check? Let me know in the comments!