Five Ways to Rebuild Credit
Of course, credit repair is the best way to rebuild credit as fast as possible. But it never hurts to supplement your credit repair services with efforts of your own. Here are five ways you can rebuild your credit.
- Correct egregious errors on your report. Whatever is on your credit report will have a direct impact on your credit score. Check your credit reports from all three major credit bureaus for accuracy every year, as well as a couple months before you apply for any major loans. Correcting even the simplest of mistakes, such as a payment erroneously labeled as late, can make a big difference in your score. The dispute process can take 30 days to three months, but a credit repair company can do this for you.
- Reduce the balances on your credit cards. A big determinant of your credit score is the percent of your total credit that you are not using, or your credit capacity. Thus, it's a good idea to keep your balances below 25% of your limit. Do what you need to do to get your balances at this level.
- Pay bills on time. To rebuild credit, you need to get into the habit of paying your bills on time each month. It's especially important that your payment be prompt around the time you need new credit, such as a loan. Remember that recent missed payments drag down your credit score much more than single late payments from years ago.
- Don't close accounts before you apply for a loan. As the time approaches that you'll need a loan, make sure you don't close any unused credit card accounts. Closing these accounts will hurt your balance-to-limit ratio because it reduces your credit capacity. Also try not to open new accounts close to the time you are applying for a loan. Especially if you have limited credit history or few accounts, opening new credit will lower your score.
- Rather than moving debt around, pay it off. As mentioned before, the ratio of your credit card balances to limits is crucial. Closing an account to transfer the balance to another means your ratio will increase, which is detrimental to your score. For example, let's say you owe a total of $3,000 on three credit cards, each of which has a $4,000 limit. That means your total credit limit is $12,000, of which you are using $3,000, or 25%. If you transfer all your balances to one card and cancel the other two, you still owe $3,000, but your credit capacity has been reduced to $4,000. That means your balance-to-limit ratio is now 75%.
For the answers to some commonly asked questions about rebuilding credit, see our FAQ page.
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