How to Rebuild a Credit Rating

Your credit rating is determined by several factors on your credit report. These include age and amount of debt, total debt to available balances ratio, payment history and collection accounts. Negative information stays on your credit report for seven to ten years. Thus, rebuilding your credit history can take time. However, you can begin to rebuild your credit rating today by making small changes and by taking control of your credit situation. Many people have successfully rehabilitated their credit rating and you can, too.

Instructions

1

Pay all bills on time. If possible, set up credit card bills to be paid automatically from your checking account each month so that you will know that they are always paid on time. When possible, pay more than the minimum payment on your credit cards.

2

If you are unable to get a credit card because of poor credit history, consider getting a secured credit card. To do this, you make an initial deposit and then borrow against your own money. Use the card regularly, but keep the balance low to build credit.

3

Only use up to 30 percent of the available balance on each of your credit cards. Bankrate explains that potential creditors do not look favorably upon those with maxed out credit cards. The most important factor affecting credit scores is payment history. However, credit utilization is the second most important factor.

4

Avoid closing unused credit cards. These zero balances can improve the ratio of debt to available credit, which can improve your credit score.

5

Avoid opening new accounts unless necessary. Your credit score may drop if you open new accounts, especially if you open or apply for more than one account within a short period of time.

6

Examine your credit report and dispute errors that may affect your credit rating. Visit the Annual Credit Report website (see Resources) to get a free credit report. You can request the report online or by phone. You can dispute errors online when viewing your report, or in writing. In most cases, you will need to submit documentation supporting your dispute. The agency must investigate the dispute within 30 days and notify you of their findings.

7

Monitor your credit report and your credit score. My FICO offers affordable credit monitoring services to help you watch for changes to your report and credit score. My FICO has been endorsed by Kiplinger, a respected source of financial advice.