Your credit score takes a beating if you go through a rough period of late bill paying, default on any accounts or even go through bankruptcy. A low score and credit reports full of negatives keep you from getting competitive interest rates, and you may not qualify for loans and credit cards at all. Credit rebuilding is possible, although it takes time and effort. Your score goes up and creditors are willing to give you accounts once you prove financial responsibility.
Open a new credit card account if your old accounts were closed because of delinquency or bankruptcy. You must use credit to rebuild it and raise your score. Some banks offer secured cards if you cannot qualify for a normal account. You put down a minimum of as little as $200, according to Karen Datko of MSN Money, and get an equivalent credit line, with your deposit acting as a payment guarantee.
Use your credit card regularly for small purchases that you can easily pay off every month. Thirty-five percent of your credit score is based on how promptly you make payments, according to the FICO scoring company. Regular purchases paid for by the due date create a history of positive items on your credit reports, which raises your score. Spending small amounts keeps your debt-to-credit limit ratio low, which also looks good on your reports.
Apply for a small loan once you build up some good history with your credit card. You need a mixture of accounts for the best possible credit score, MSN Money writer Liz Pulliam Weston advises. Adding an installment loan to your revolving credit, and making all the payments on time, helps your credit rating.
Order your credit reports from Experian, Equifax and TransUnion through the official AnnualCreditReport.com website and confirm that your positive activity appears on all three reports. Creditors do not know you are rebuilding your credit and your efforts do not affect your credit score if your reports do not reflect the good information. Ask your credit card and loan companies to report your accounts if they do not show up.
Credit report websites other than AnnualCreditReport.com charge for reports or require purchase of your credit score, a credit monitoring membership or some other paid service in exchange for free copies. You get a free report copy from each bureau once per year through AnnualCreditReport.com with no obligation, according to the Federal Trade Commission. Use that official website when checking the progress of your credit rebuilding efforts.
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