While rebuilding credit can be a different and much longer process than building credit, the steps are similar in many ways. Here are some helpful guidelines for successfully rebuilding your credit:
- Pay existing debts on-time – Consistently pay your bills and lines of credit on-time, and remember that on-time payments are arguably the most important factor in improving your credit score. Another major influence is “credit utilization,” which refers to how much of your average credit is used, and you should aim for less than 30% (ex. using no more than $3,000 in credit against a total credit availability of $10,000).
- Obtain a secured credit card – These work like other credit cards, except you deposit money upfront as collateral. Again, try to use less than 30% of your credit limit.
- Catch up on payments – Try to bring each of your accounts up-to-date, and contact your creditors if necessary to work out appropriate payment plans.
- Try not to close credit card accounts – A longer credit history means a better score, but you may need to cancel a card if you are significantly behind on payments or enter a payment plan which requires you to cancel an account.
- Check your credit report – Ensure accuracy and identify areas for improvement by checking your credit report. Visit AnnualCreditReport.com, which is officially run by Experian, Equifax, and TransUnion, or order a report directly from one of the three bureaus. Check your debt utilization and for any errors, missed/late payments, or fraudulent accounts and report these inaccuracies to the bureau to protect your credit score.
