11 Tips to Rebuild Your Credit

Looking for tips to build your credit? Here’s a slew of them to help you get your credit back on track.

Set a date night with your credit.

Think of it as your monthly check-up, or weigh in. Or add it to your to-do list when you pay your bills. Just be sure to take a few minutes each month to review your credit scores, monitor your progress, and set your goals for the coming month. Your credit reports and scores are generated when they are requested, so as soon as negative information is no longer reported — or positive information is reported — your scores can change. Use Credit.com’s Free Credit Report Card to monitor your credit scores as you fix your credit.

Don’t overlook the obvious.

When you are trying to fix your credit, you may find yourself focusing on the “big” stuff like judgments, charge-offs or other negative information. But the personal information on your credit reports is also important. A misspelling of your name, or an address you’ve never lived at, could indicate your credit information is getting mixed up with someone else’s. So take errors here as seriously as any other mistakes you may find on your credit reports.

Mark your calendar.

The Fair Credit Reporting Act addresses how long negative information can remain on your credit reports. There are limits on how long negative information can be reported:

  • Late payments: 7 years from the date the payment was late
  • Collection accounts: 7.5 years from the date of delinquency on the original debt (leading up to collection)
  • Charge-offs: 7 years from the date charged off
  • Tax liens: 7 years after they are paid or satisfied
  • Judgments: 7 years from the date entered by the court if paid, possibly longer if unpaid
  • Repossession: 7 years from the date the repo occurred
  • Bankruptcy: 10 years from the date filed (Chapter 13 cases will be removed 7 years from the date of filing)

You typically don’t have to request that the credit reporting agencies stop reporting negative information that is too old; they do that automatically. But it’s still a good idea to check your credit reports around 30 – 60 days after this type of information is scheduled to come off your reports to make sure it’s gone.

Watch out for credit report double jeopardy.

Collection accounts that go unpaid may be sold from one collection agency to another. When that happens, both the number of collection accounts and the amount of debt you owe can be inflated. One of our readers founds that four unpaid credit card debts turned into fourteen collection accounts on her credit reports! It may take time to unravel which are legitimate, but when you do, dispute all but the most recent accounts as duplicates.

Don’t be afraid to bargain with debt collectors.

As far as your credit scores are concerned, it doesn’t make much of a difference whether you pay a collection account in full or settle the balance for less than the full amount. Just make sure that you get any deals in writing. Paying a collection account won’t immediately change your scores, but it will mean you can stop worrying about that debt and focus on other financial goals.

Kiss your tax lien goodbye.

If there’s one great tip to build your credit, this one is it: If you pay or settle a tax debt that resulted in a tax lien on your credit reports, you may be able to get that lien removed completely from your reports. The same may apply if you enter into an installment agreement with the IRS. Find out if you qualify and if you do, your credit scores may improve significantly when the tax lien is removed.

Accentuate the positive.

After running into credit problems, you may be afraid to jump in the water and use credit again. While you certainly want to be cautious and avoid getting in over your head again, getting credit is going to be essential to building your scores again. Recent, positive credit information can help your credit scores, and can make a big difference as you fix your credit.

Get a secured card.

These cards should be easy to get, even with damaged credit because you put up a security deposit for the card. (Manage the account properly and you will get your money back when you close the account.) If you choose a card that is reported to all three major credit reporting agencies, you’ll establish a new positive credit reference.

Don’t max out a credit card.

I recently talked with someone who is trying to restore his credit after a short sale and tax liens sent his scores plummeting. He opened a secured card with a $500 limit and was using it as often as possible, in hopes that would help his credit. What he didn’t realize is that his credit report listed a $400 balance on a card with a $500 limit. That made it look like he was maxxing out a card, which wasn’t helping his scores. Ideally, you want to use no more than 10 – 25% or so of the available credit on an individual card to score well for this factor.

Dispute mistakes the right way.

When you review your credit reports, you may find information that is wrong. If the mistake is a serious one, it’s a good idea to send a letter rather than filing an online dispute. You’ll need to challenge the error with each of the major credit reporting agencies that is reporting the error, since they don’t share information with each other. And if you ask a lender to correct information that it is supplying to the credit reporting agencies.

Be extra careful this time around.

One late payment can mean a big drop in your credit scores, and that’s not what you need if you are trying to fix your credit. Set bills up on autopay or set up automatic payment reminders by email and/or text message so you don’t forget a bill.

Image: iStockphoto

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