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Rebuilding Your Credit

Rebuilding credit takes time, perseverance, and discipline. Bad credit doesn’t happen overnight and neither does rebuilding your credit. However, having a good credit score is the key to financial freedom. A bad credit score can prevent you from being able to get a loan, land a good job, or even getting insurance for your car. Those creditors that will lend to people with bad credit charge much higher rates and up front fees than those that lend to people with good credit. The good news is that rebuilding your credit is possible. It requires you to build a realistic budget that you can deal with and the discipline to stick with it, but the reward is well worth the effort.


The first step to rebuilding your credit is to understand where your credit is now and how it got there. Obtain copies of your credit reports from all three credit reporting agencies: Equifax, Experian, and Trans Union. You can get a free copy from all three reporting agencies once per year, though you may have to pay for your credit score. Review the report and look for any inaccuracies that may be erroneously lowering your score and have them corrected. Then take a hard look at your payment history. Paying all of your accounts on time every month is the single most important factor for raising your score. If you have late or missed payments, understand that these have the largest impact on your credit score and resolve to fix that issue first. Forget about your past payment history as there is nothing you can do to fix that. However, concentrate on paying your accounts on time each month going forward.


Next, do not apply for any new credit or any other product that requires you to have a credit check. This is because inquiries also lower your credit score. Since you have bad credit, odds are you do not need to apply for additional credit until you have your existing credit accounts well at hand. The only exception to this is if you can improve your income by applying for a better job.

Concentrate on paying down your balances. Chipping away at your balances will help improve your score by freeing up available credit. Individuals that maintain high balances on their credit accounts present a credit risk to potential lenders. This risk factor is figured into your credit-scoring model.

As you pay off your accounts, avoid the impulse to close the account. In order to rebuild credit, you need as many accounts in good standing reporting to the bureaus every month. It costs you nothing to leave an account open and a paid in full account will report as a positive account every month. Refrain from using the account, however.

Last but not least, monitor your reports and remove negative accounts after they age. Negative credit items can be reported on your credit report for 7 years after the last date of report. This means that the item can be completely removed from your report after this timeframe expires. Many times, the reporting agencies do not automatically remove these accounts from your file and you must request that they be removed. Stay on top of your report.

Your credit report will not heal overnight, but it will improve over time. You will find that many times it will be hard to make ends meet and pay your accounts every month, but your efforts and perseverance will be rewarded.

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