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05-31-2012, 08:26 PM #1
First Steps To Rebuild My Credit Score?
Whether your credit score has suffered from a job loss, poor decisions on your part, or medical bills, there are steps you can take to improve it. If you make sure you fix the source of the problem, get rid of any inaccuracies on your report, and are patient with the results, you should get back to a good—if not great—credit score in time.
Step 1. Fix whatever got you into this situation in the first place.
You need to look at what dragged your credit score so low in the first place. If you have a shopping addiction or just don’t like using a budget, you need to fix that before you start trying to get credit cards again or you’ll just end up back in the same situation. (Tip: for budget help, try a site like Mint or YNAB.) While not strictly financial, figuring out how you got into this situation and making sure it doesn’t happen again is the most important part of rebuilding your credit.
Fixing your situation doesn’t necessarily mean assigning blame. Your credit may have suffered due to a job loss, and that’s a perfectly reasonable cause, but there are ways to protect yourself against this in the future. An emergency fund is always important, as is keeping current with the industry and making sure you have marketable skills. Once you feel confident that whatever caused this mess is behind you, you can move on to the next step.
Step 2. Clear off any false information from your credit report.
You should check your credit report at least once a year. To help you out, the government requires that each of the credit bureaus gives you access to one free report per year, available at www.annualcreditreport.com. If there is any false information on your credit report, you need to contact the credit bureau(s) immediately to dispute the information. You can find their contact information here.
Step 3. Use credit wisely.
The steps to rebuilding a bad credit score are pretty similar to the steps to get and keep good credit in the first place. Most importantly, you have to pay your bills on time. This is the biggest component of your credit score (35%). Set up automatic payments or alerts on your phone to remind yourself to pay. The other big chunk of your credit score, making up 30% of your score, is your debt utilization. Use less than 30% of your credit limit (or ideally, less than 10%), and you’ll score well here.
The last three elements of your credit score are the age of your accounts, the types of accounts you have, and new credit. Together, these make up 35% of your credit score. To keep this part of your score healthy, keep open your oldest accounts, make sure you have a good mix of credit (such as a credit card or two, a mortgage, and student loans), and don’t apply for too many new loans or credit cards.
If you went through a bankruptcy, you have to start from scratch. Usually you will have to start with a secured card, which requires you to make a deposit, and you borrow against that deposit. If you choose a card that reports to the three main credit bureaus, your credit score will start to rise and in a few months to a year, you can start to qualify for other cards. Make sure to use these, but as always, keep the utilization low to boost your score.
Step 4. Be patient.
Unfortunately, rebuilding credit is not an overnight process. Just like when you gain weight and have to stick to an exercise program to drop the pounds, building a healthy credit score requires time and commitment. Some months it may seem like nothing is changing, but if you keep using healthy credit practices, you will get there. One day you’ll check your credit score and it will be in the 700s. Once that happens, you’ll start saving money through lower interest rates on your cards, car loans, or even mortgages.
06-04-2012, 04:16 PM #2
Closing / disputing / settling all of your accounts before trying to rebuild your credit is a must - otherwise you will just be treading water.
11-20-2012, 12:25 PM #3
Great post. I've included a link to this on the official "Build My Credit" page.
11-29-2012, 12:44 PM #4
thanks for the advice!!