Rebuilding Your Credit After a Hard Credit Check

Man taking out a credit card out of a wallet

The credit system is an essential part of the financial ecosystem that allows creditors to determine which individuals are qualified to take on loans and lines of credit. As credit card borrowing continues to soar higher than it has been in decades, it’s important to understand exactly how to build your credit back up after a hard credit check.

What is a hard credit check?

It’s important to know that there are mainly two kinds of credit checks that can be done to check your credit report. A guide to hard vs. soft credit checks will show you that the biggest factor differentiating the two is how it affects your score. A hard credit check will temporarily cause your score to lower. Meanwhile, a soft credit check will have no impact on your score and won’t even show up on your credit report.

If you don’t want to be cut off from certain credit lines, opportunities, and financial resources, you need to ensure that your credit score stays at a good level. A hard credit check will dock anywhere from two to 10 points from your score. This is usually conducted by lenders, credit card companies, and other financial institutions. It’s important to focus on letting your credit bounce back after a hard inquiry because it can take up to a year for the score to get back to its former numbers. This type of pull also stays on your report for around two years.

When you take on a hard inquiry, you must keep the law of unintended consequences in mind. Difficulty establishing financial mobility and potential hurdles toward employment and renting property can most definitely present themselves when you don’t consider how your score will be impacted or how you can rebuild after an inquiry.

Tips on how to rebuild credit after a hard credit check

A hard credit check need not be the end of the line, but actively rebuilding does bear importance for individuals who want to maintain or improve their credit. This is especially crucial for those who have major plans that involve financial access. After all, one in 10 Brits is deterred from applying for a mortgage because of poor credit scores. Consider these tips to rebuild your credit post-inquiry.

Limit Any Further Hard Inquiries

The last thing you want to do is have too many hard credit checks within a short period of time. You need to take enough time to give your credit room to recover. If not, your credit score will take an even larger hit and potential lenders or financial bodies may consider you high risk. Try to avoid applying for loans, rentals, and new credit cards too often in quick succession to limit the hard inquiries.

Minimize Your Credit Utilisation

Credit utilisation refers to the percentage of your total credit you are using in comparison to the total credit you have access to. Basically, this compares what you owe to how much your total limits are. In order to have better credit, you need to minimise your credit utilisation as much as possible. This can be done by paying debts above the minimum and ensuring that your usage goes below 30% of your available credit.

Keep Paying Bills on Time

Consistency and patience are the keys to rebuilding your credit. Make sure you stay on top of your bills and debt obligations so that you don’t fall behind. This will eventually lead to your credit bouncing back sooner rather than later. When paying back your loans, you may also want to consider how the loanable funds theory affects the interest rates that trickle down to you. As there is more demand for funds in the wake of inflation, you will need to consider how this affects the payables that you need to crack down on.

Set Clear Budgetary Objectives

Creating a budget is all about managing how much cash is going in and allocating it to the right channels. Studies and polls have shown that falling behind on payments only leads to low life satisfaction, high anxiety, and a tendency to incur even more debt. If you set clear objectives within your budgetary plans, you can pinpoint the most crucial areas that need to be dealt with as soon as possible. Instead of being vague, it will help you build your credit up more efficiently if you set specific goals in terms of savings, necessities, and paying off debts.