Since 2008, many people have faced horrible debt decisions. They have walked away from foreclosed homes. They have broken leases and abandoned credit card debt.
They may build large amounts of high-interest loan debt, but now, almost five years after the worst of things, it’s time to start rebuilding your financial life from the inside out.
Step 1: Check your current standing.
You can’t go about fixing your credit score until you know where you actually stand with your credit. What is your current score? You can find out easily enough by getting you FICO, or credit, score. To do this you can order your free credit report once per year from the government sponsored AnnualCreditReport.com. Be sure that you check all three credit bureaus as they may all have differing scores.
Step 2: Dispute mistakes on your credit report.
If you see a mistake on your credit report, you need to challenge the report and have the mistake corrected. To do this, dispute the mistake by following the steps laid on the government’s page dedicated to this very purpose. Basically, you’ll submit a letter and supporting documents explaining the dispute. The credit bureau will investigate and correct the mistake if there is, in fact, a problem. If you’ve declared bankruptcy, for example, some of your debts may not appear to be discharged in the bankruptcy. By putting in a dispute, you can be sure that your credit report is accurate at least.
Step 3: Get a credit card.
You may have walked away from your credit cards in the past or declared bankruptcy, but as soon as you can, get another credit card and start to use it wisely. This may mean that you open a secured card for a time, but any credit card that you’re using wisely – buying a small amount and paying off the balance every month – means your credit is rebuilding steadily. You don’t need to carry a balance on the card, mind you. You just need to have one and use it. Be sure that the card you get is reporting back to the credit bureaus.
Step 4: Obtain an installment loan.
Credit cards are revolving debt, which is one side of the credit score equation. The other is your installment debt. An installment loan is one that you pay back over time, in a series of installments. A car loan or personal loan works like an installment loan. Often, unless you’ve had your car repossessed, you’re able to get another car loan, so consider refinancing your car or opening a small installment loan for something you need (not want – you don’t want to get into trouble again!). Just be sure that you can afford your loan easily, and take advantage of the low interest rates if possible, at least.
Step 5: Use old accounts.
If you’ve put old credit cards aside and ignored them for years, call up the company to see if you can get the card opened again. You may even have a line of credit still available with that card. Using older credit cards shows that you’ve have a long credit history and this makes you a more attractive credit risk for banks, thus raising your FICO score. Use your oldest credit cards if you can, or at the very least, keep your current cards open and paid off so that they can “age” your credit score.
Step 6: Remove late payments.
While it doesn’t always work, you can often get companies to remove late payments from your records if you’ve been a good customer over a period of time. If you’ve only paid your mortgage late one time in four years, for example, you might be able to get that late payment designation removed from your credit report. You can do this by simply sending a letter asking the company to do a “goodwill adjustment” and remove that late report. They may not help you out, but it’s always worth asking.
Step 7: Reage your accounts.
If you ran into trouble years ago, but you’re all caught up now and doing well with payments, ask your credit card companies or mortgage holder to “reage” your payments. This would erase the previous late payments on your record if you’ve made 12 or 24 on-time payments since the trouble occurred. This is a particularly useful tool for those who suffered a bad year, but have improved since that time.
Step 8: Keep a clean act.
Finally, you can do all of these things to start repairing your credit, but it’s all worthless if you don’t take the time and make the effort to keep up the good work. One late payment is all it takes to devastate your fragile credit report again. Get on top of your bills and stay there. Not only will you have a better credit rating, but you’ll have a more confident grasp of your financials as well.