Credit Advice & How to Rebuild Credit

Looking for credit advice? When it comes to applying for different types of loans—such as installment loans—credit matters. After all, your credit score can influence your rates, terms, and approval odds.

But credit is also important in other aspects of life. Insurance companies often check your credit to determine your premiums for things like home or auto insurance. Future landlords use it to decide whether to lease an apartment and what deposit to charge. Some employers also consider a candidate’s credit score when deciding whether to hire them.

If you have poor credit or limited credit history, trying to fix it can feel overwhelming. There is good news, however. Not only can you build credit from scratch, but you can also repair bad credit.

Here’s everything you need to know when it comes to looking for credit advice like what it is, how it affects you, and the methods you can use to build or rebuild it.

To understand what your credit score means, you first need to know how credit works.

If you’ve ever applied for a loan or credit card, chances are you have some kind of credit history. Your credit history shows up on your credit reports, which you can find through the three major credit bureaus: Equifax, Experian, and TransUnion.

Your credit reports show prospective creditors and lenders your credit habits and quantify it as a three-digit number ranging from 300 to 850. The different factors found in your reports include:

• The number of open credit card accounts, loans, and other financial products you have
• Available or unused credit versus the total current balances
• How long you’ve had each account (and the average length of history across all of them)
• Your payment history (including missed or late payments)
• More major issues like bankruptcy, foreclosure, or old judgments

Different creditors will pull your credit report from at least one of these bureaus to check your credit history. This helps them make an informed decision about how much of a risk it is to work with you. The better your credit score, the smaller the risk. That’s why you’re more likely to qualify for the financing you need if you have good or excellent credit. So, what is a good credit score?

Several scoring models, like FICO and VantageScore, calculate your credit score based on your credit history. Each system calculates your score a little differently, but they all serve the same purpose of showing your creditworthiness. Each credit scoring model also has a range of scores. Here’s FICO score ranges:

And here's the VantageScore ranges:

You can also break down credit score levels into the following categories as defined by the Consumer Financial Protection Bureau:

Someone with a credit score in the higher ranges—what’s considered “good,” “prime,” or “superprime” credit—is more likely to qualify for financing than someone in the lower ranges.

Credit matters because it’s a tool that makes it easier to get the financing you need when you need it. The better your credit, the easier it is to achieve personal and financial goals like:

Direct lenders will use your credit to determine whether to approve your application. They’ll also use it to set your interest rates, loan amounts, and terms. If you have good credit, you could qualify for the best loan offers.

But lenders are not the only ones who care about your credit. Many service providers and companies also rely on your credit. For example:

While having good credit is helpful, you could still qualify for different types of loans and services with bad credit. For example, FHA loans generally only require a 580 credit score to qualify. You may also be able to get personal loans for bad credit, bad credit installment loans, or other easy loans.

Several factors affect your credit score, but each scoring model weighs them differently. Here’s how the FICO scoring model does it:

The VantageScore model does not use a percentage to express these factors. Instead, it breaks down these categories like this:

Some factors that do not affect your credit score include your:

According to the Consumer Financial Protection Bureau (CFPB), approximately 80% of the adult population in America has some kind of credit history. That leaves another 20% of people with either no credit history or extremely limited history.

Building credit takes time, especially if you’re just starting. For some people, it can take years to get the credit score they want.

Fortunately, you can start building your credit right now—even if you do not have any history.

Both short-term loans and long-term installment loans exist for borrowers with limited to no credit. These are sometimes called no-credit-check loans, and they're also good if you need money now or emergency money. Just make sure you have the money to pay them back as scheduled, or you could end up hurting your credit score.

You can find direct lender loans online, such as through Jora, and complete the online loan app. Or, if you’re a credit union or bank member, you may be able to apply through them. Alternatively, you might be able to find direct lender bad credit loans or installment loans online.

Some of the best loans for bad credit or borrowers with limited credit include installment loans, federal student loans, or credit-builder loans. You may have trouble qualifying for an unsecured personal loan, but you could get a small secured personal loan if you have collateral to back it. Or you could get bad credit online loans or other online loans.

Many credit cards exist for borrowers with no credit history. Two of the most common options are secured credit cards or store credit cards (also called retail credit cards).

Secured cards do not typically require a credit check, making them ideal for people new to the credit system or those rebuilding their credit.

With a secured card, you will need to pay a small deposit into a secured account. This deposit acts as your credit line. You can use the card for purchases like with any other credit card. The card issuer will report your payment activity to the credit bureaus to help you build credit.

Retail credit cards, such as those you might get with furniture financing, also typically have minimal requirements. Many retailers will not even check your credit score, though they may require you to meet certain income requirements. If you use the card responsibly and make on-time payments, you can start establishing credit.

If you do not qualify for credit on your own, ask a family member or spouse if you can become an authorized user on their credit card account.

As an authorized user, you will get your own card that you can use as you see fit. You will be responsible for making payments on that account. Any payment activity—including missed or late payments—will be reported to the credit bureaus.

Some credit card companies do not report activity from an authorized user, so make sure yours does before becoming one. Also, make sure the primary account holder is someone who also keeps their account in good standing. If they do not, it could make building credit tricky.

If you have no credit history or a thin credit profile, you could still build credit by adding alternative information to your credit profile. This includes things not usually reported to the credit bureaus, such as rent payments, utility payments, or cell phone payments. Over time, your positive payment history will show up on your credit report and help you establish credit.

If you have bad credit and want to rebuild, you’re not alone. Many people end up in a similar situation, often through no fault of their own.

It can be stressful or even discouraging if something sets you back like that, especially if you spent years trying to get your credit to a good place. But there’s good news—you can always rebuild your credit score.

Credit counseling companies can help you create a realistic personal budget based on your income and expenses. This can make it easier to keep up with payments or even start paying more than your minimums.

Some companies also offer debt management plans (DMPs) to help you pay off debt. And, since both credit utilization and payment history help determine your credit score, this could help you repair your credit.

Late payments not only mean late fees, but they can also hurt your credit score. If you’ve fallen behind on payments, start tackling them one by one until you bring your accounts current. Having a budget can help with this.

If you’re having trouble catching up on payments, contact your lender or credit card company to negotiate a payment plan. They might be willing to work with you, especially if you’re upfront about your financial situation and show a willingness to solve it. Depending on the situation, they could waive late fees, lower monthly payments, or change due dates.

Whether you’re building credit for the first time or rebuilding from the ground up, certain types of alternative loans could help. These includes:

• Credit-builder loans: A credit-builder loan is a kind of reverse personal loan. Instead of receiving funds upfront, they end up in a secured account. You then make regular payments on the account until you’ve paid the entire amount (sometimes with interest). Each month, the lender will report your payment activity to the credit bureaus, helping you build credit. When you’ve fully paid the account, you will receive access to the funds.
• Secured loans: A secured loan, like an auto loan, is backed by collateral. Because of this, lenders usually consider these to be less risky than traditional options. This may make them more willing to lend to you.
• Peer-to-peer (P2P) loans: A P2P loan is a loan you get through an individual investor rather than a bank, credit union, or online direct lender. Each investor sets their own rates, terms, and loan requirements. This could make it easier to qualify for a loan, even if you have bad credit.
• Other short-term loans: Installment loans for bad credit, some of which are instant loans, are another option if you need a cash loan and want to rebuild your credit. Not all quick loans will help you build credit, though. For example, most title loan, pawnshop loan (learn more about how pawnshops work), and payday loan lenders do not report positive payment activity to the credit bureaus.

If you ask for a higher credit limit on your credit card, you could lower your total credit utilization. For this to work, you will need to communicate with the card issuer and try to keep your balances low.

Say, for example, your current limit is $1,500, and you owe $1,200. You’re using 80% of your available credit. If you increase your limit to $2,000 but do not change your balance, your new credit utilization will be 60%. This decrease could help improve your credit score.

Checking your credit report every couple of months can give you an idea of where you’re at in terms of rebuilding. It can also help you identify any potential errors on your credit report that might lower your credit score.

If you do find an error, file a dispute with the respective credit reporting agency. You can do this either online or via certified mail. If the bureau removes the mark, it could boost your score.

Paying off debt, even if you do it slowly, will start lowering your total credit utilization. It will also help you build up positive payment history. And it will show prospective lenders that you can manage your accounts. All of this can help you rebuild credit.

Plus, many lenders consider an applicant’s debt-to-income ratio (DTI) when deciding whether to lend money. Your DTI ratio refers to the total debt payments you make each month divided by your gross (before-tax) income.

Although your DTI ratio does not directly affect your credit score, most lenders prefer applicants with a lower DTI ratio. If your DTI ratio is too high, it can be challenging to qualify for new loans or lines of credit. Also, the more you owe, the harder it is to keep up with monthly payments.

There are many ways to pay off debt. One way is the debt snowball method. With this method, you focus on paying as much as possible toward the debt with the smallest balance first (regardless of interest rate). In the meantime, you still pay the monthly minimums on all other debts. Once the smallest debt is gone, you move on to the next one, and so on.

If you need fast loans and have bad credit, you still have options. Certain lenders offer no-credit-check loans and bad credit loans. These are typically easier to get than traditional loans. Some of these lenders may also report your payments to the credit bureaus to help improve your credit.

If you need cash fast, you could also apply for emergency loans for bad credit online. These are useful if you need to pay for things like unexpected bills, rent, or other small expenses.

Some loans, such as installment loans, can also help you improve your credit score and add to your credit history. Plus, since installment loans have longer repayment terms, you have more time to pay them back.

Jora is a bad credit installment loan direct lender with flexible loan options. With Jora, you can apply for an installment loan online and potentially receive same-day approval and funding. The application process is simple and only takes a few minutes, too.

Learn more about Jora’s installment loans online, what an installment loan is, and how Jora works.

Whether you’re trying to establish a credit score or rebuilding your credit after a major life event like foreclosure or bankruptcy, you have options. It might take some time, but you can get your finances and credit back on track. If you need cash for something now but have bad credit, Jora’s got you covered as well as providing credit advice along the way. You can apply now and receive a credit decision almost immediately.