Steps to Rebuild Credit

Many people have to contend with falling credit scores due to a bankruptcy, foreclosure, job loss or other major event. When credit scores fall, people have to pay more to borrow money and in some instances people become ineligible to borrow at all. Additionally, insurance premiums are higher for people with low credit scores, which means it costs more to get health coverage or to protect your property. There are several things people with low scores can do to improve their credit rating.

Check Your Credit Report

The major credit bureaus rely on creditors to provide information about the credit practices of individual consumers. Generally records are accurate but on occasion a creditor or credit bureau can make a mistake that could cause someone's credit score to decrease. People with bad credit often do not check their credit reports because they know they have charged-off debts. However, alongside legitimate debts there are sometimes balances being reported as owed that are incorrect. People have a legal right to a free annual free credit report from each major bureau and checking it can often expose errors that are impacting credit scores.

Settling Debts

Creditors can report charged-off or delinquent debts to the credit bureaus and these late payments and abandoned accounts remain on record for seven years. However, settling a debt can improve your score. The occurrence of the late pay remains on the report but reported debts that have been paid do not damage scores as much as reported debts that are outstanding. Major debts such as mortgages are hard to payoff but settling minor debts such as hospital co-pays or unpaid taxes can help improve a credit score.

Pay Bills On Time

Credit reports examine the payment habits of people and someone with a charged-off debt or foreclosure can slowly rebuild their score by paying their other bills on time. A timely credit card payment does not offset a car repossession but it can show that an individual has got their finances back on track. Applying for a secured credit card or cash secured loan also helps to rebuild credit. Secured loans are reported to credit bureaus in the same way as unsecured loans and these are often the only forms of credit open to people with low credit scores.

Do Not Close Accounts

Some people believe that reducing their credit helps their score. Many people pay off credit cards and then close the cards thinking that they have helped to raise their score. In fact, credit scores are partly based on an individual's average length of account history. Closing a card reduces the average account length and lowers the score. Closing a card with no balance also raises the overall debt utilization so keeping open zero balance credit lines helps rather than hinders people trying to rebuild their credit.