How to Rebuild Good Credit After Having Bad Credit

Bad credit is a financial setback, but the FICO credit score company explains that it doesn't have to be permanent. You can start rebuilding good credit immediately if you are capable of paying your bills and managing your accounts. It may take months or years to fully restore your credit score, but good credit will enable you to easily get loans and credit cards and to qualify for the most attractive terms and interest rates.

Instructions

1

Calculate a budget that allows you to make on-time payments to all of your accounts every month. Your payment history carries the most weight in your credit score, according to FICO. Cut back on voluntary expenses so you can pay at least the minimum amount due. Pay more towards high interest accounts if you can afford it to reduce the principal more quickly. Lower balances also help rebuild your credit.

2

Set up automatic payments for your loans, credit cards and other bills if your bank allows it. Otherwise you might forget to send a check or the payment might be delayed in the mail. Just one late payment harms your credit rebuilding efforts, FICO advises. You eliminate this possibility almost completely with automatic payments.

3

Dispute every mistake that hurts your credit. Bob Sullivan, an MSNBC.com columnist, states that between 16 and 25 percent of credit reports have potentially harmful errors. The three major credit bureaus do not review your reports for mistakes, but the Fair Credit Reporting Act, or FCRA, lets you do it yourself and dispute the inaccuracies. Equifax, TransUnion and Experian all have forms on their websites for error reporting. They must investigate your claims within 30 days and correct or remove unvalidated items.

4

Use old credit cards once or twice a year instead of closing them. FICO looks at the length of time you've had credit, and older accounts help raise your score. Consumer radio and television show host, Clark Howard, recommends leaving old, unused accounts open and using them periodically for small transactions to keep them active. Pay the bill as soon it you get it.

5

Maintain credit card balances well below your overall credit limits. FICO explains that part of your credit score is based on the ratio of amounts owed and available credit lines. You will rebuild good credit by keeping your balances reasonable.