Get Started with Rebuilding Credit History
Rebuild credit by first rebuilding your credit history. A history of bad credit must be replaced with a good credit history. Once you start to rebuild credit history your credit scores will improve. The amount of time it takes to rebuild credit depends on the amount of negative credit items in your reports and how determined you are to stick with the process.
Rebuilding your credit history can be accomplished by a few or several strategies:
- Adding positive credit
- Deleting negative credit items
- Paying bills on-time
- Reducing the amount of credit card debt carried from month to month
- Disputing errors in each of your major credit reports from Experian, Equifax and Transunion.
You may see a difference in credit scores within 60 to 90 days; but keep in mind, some stubborn credit items may take several months to improve.
Start by Reviewing Your Credit Report
There are several ways to get your credit report:
- Order your free credit reports from Experian, Transunion and Equifax at annualcreditreport.com
- Pay for credit reports and FICO scores at myfico.com (FICO Credit Scores are probably the most accurate credit scores as they are used by 90% of banks and lenders)
- Get a free credit report if you were denied credit, employment, housing or insurance. If you are on government assistance you can also request free credit reports
Find out what’s keeping your scores low
When determining what accounts in your credit history are negatively impacting your FICO scores you should first look at the following:
1. Any recent major derogatory is going to lower your FICO scores the most.
The credit bureaus do not have an obligation to delete accurate negative information. However, inaccurate negative information can and should be disputed. Start with the following major derogatory credit information such as:
2. Find an inaccuracy in the negative account to dispute.
If there is inaccurate information on a negative account such as an incorrect date or amount, that can be disputed. The key to disputing negative information is to request the account be deleted instead of corrected. Keep in mind the credit bureaus do not have to delete inaccurate information however they are required to correct inaccurate information. But it does not hurt to ask for a deletion.
3. Focus your efforts on recent negative information.
You may want to consider leaving older negative information to drop off your credit reports. Older negative information affects your credit score less than newer negative credit information. The credit scoring model gives more weight to accounts that are recently negative. Once a negative accounts reaches 48 months or older it matters very little in calculating your FICO scores.
Articles on how to repair credit and disputing negative credit contain useful tips on dealing with specific negative credit items. If you need to deal with collection accounts learn how to get deletions with a pay for delete letter or learn the best way to dispute collection accounts.
Pay all credit obligations on-time
The pie chart displays what factors determine FICO scores. Take a look at the amount of weight given to payment history, it is the largest part of your FICO score, accounting for 35%. A credit history of late payments is going to kill your FICO scores. There is no getting around late payments except to start making on-time payments immediately. Your scores can recover.
Avoid unpaid bills and late payments
One late payment can reduce a good credit score by as much as 100 points! If your credit score is already low, late payments may only reduce scores by 30 points. Nevertheless avoid late payments no matter what your FICO scores. Although recent late payments will hurt credit scores more than older late payments, it’s still a good idea to rid your credit reports of them because they can remain up to 7 years.
Avoid information that typically is not listed on credit reports ending up becoming part of your credit history. A ticket, library fine or even utility bill can find its way to a credit report if left unpaid. Avoid unpaid bills, even if they are small, being sent to a collection agency. Once a bill ends up with a debt collector it can remain on your credit report for 7 years, whether it is paid or unpaid.
Minimize revolving credit account balances
Revolving credit is basically any credit card. That would include major credit cards like Visa, Mastercard, American Express and Discover and also retail credit cards like Macys, Neiman Marcus, JC Penney or Old Navy. Even if your local furniture store extends a credit account, that would also be considered revolving credit. The word “revolving” means you can carry a balance from one month to the next, or “revolve” the debt.
Any outstanding credit card debt should be reduced. You will get the best results in rebuilding credit if you maintain current account balances to no more than 10% of your available credit limit.
For example: A credit card with an available credit limit of $2,000 should have a balance of no more than $200 which is 10% of $2,000. The credit limit of the account does not matter; this rule should be practiced even if your account limit is $200. Try it and watch your credit score increase. Maintaining low balances translates into higher scores and shows how well you manage credit card debt.
Consumers who manage credit well and have little debt are considered a good risk and banks will come looking for your business. If 10% is too difficult to maintain aim for 30% of your available credit limit.
Prepaid cards are not credit cards
Get New Credit: Where can I get a credit card?
Banks and credit unions offer credit cards. They usually offer credit cards to people with a good credit history. But replacing bad credit with good credit is mandatory! If you have no open accounts and no credit activity, you are not demonstrating that you can manage credit and your credit history.
Get a credit card specifically designed for consumers who need to rebuild credit.
The Credit One Bank® Platinum Card is a credit card that may help rebuild credit and offers cardholders cash-back rewards of 1% on gas purchases. You can pre-qualify in less than 60 seconds without affecting your credit score.
A credit account like the Fingerhut Credit Account is fairly easy to get and designed for consumers looking to build or rebuild credit history. It is a retail card that can be used to purchase over 70,000 brand-name products.
Secured credit cards are also an option. The OpenSky® Secured Visa® Credit Card has no minimum credit score required for approval. It works just the same as unsecured credit with the exception of you placing a deposit, typically from $200 up to $3,000 in an FDIC insured bank account.
Exercise caution when seeking new credit. You want to avoid too many credit applications as each inquiry will decrease your credit score by a few points and banks will view you as a risk because credit applications indicate you may be taking on too much debt.
Tip to Raise Credit Scores Quickly
Maybe your credit history is not in need of rebuilding and you just want to quickly improve your credit scores.
- First – Keep any old credit accounts open. You may not be using that old account but it is helping your credit score and closing it may lower it.
- Second – If you have recent late payments, ask your creditor to remove them. I am not talking about disputing with the credit bureaus. Go directly to a creditor and simply ask for a removal of a recent late payment. Your creditor may want to extend goodwill to you if a late payment was a mistake and not consistent with your regular payment habits.
- Third – Reduce your credit card balances. You will experience an increase in credit scores as soon as your creditors report the reduced balances. As mentioned above, the best scenario would be to reduce your revolving balances to 10 percent or less of your available credit limits for the highest credit scores.
Practice makes perfect: Maintaining Good Scores
Okay, now that you have new credit what should you do with it? The answer is simple. Practice good credit habits to rebuild credit. Your goal in rebuilding credit should be to have credit score of 720 or above. Some of you may be 50 points away from a 720 credit score and others may be 150 points away. It does not matter where you start, it’s where you end up that counts.
Some consumers cease using credit cards after having bad credit or a bad financial experience, but that will not help you rebuild credit. Creditors want to see how well you manage credit and you can only accomplish this by using credit. Charge only what you can afford to pay and make sure you pay on time each month and your credit history will recover. ” If you are not comfortable with several open revolving accounts, you should keep at least one credit card open and use it to make small purchases, paying in full each month. Otherwise, you may not be able to qualify for new credit like a mortgage or auto loan when you want them.
For additional creditors that cater to bad credit consumers visit: “Easy Approval Credit Cards”
I appreciate you visiting this website
I just wanted to finish by saying that while I do not personally repair credit, I do my best to respond to all emails and questions. Rebuilding credit history takes a commitment to understanding how the game of credit works. Once you learn how to play the game, you will win every time. A credit repair company can easily help rebuild your credit but when you embark on your own rebuilding journey it is not only rewarding but helps in preventing future credit mishaps.
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