How to Rebuild Your Credit

A step-by-step guide to improving your score

A bad credit score can feel like a dark cloud that you just can not shake. If you want to buy a house, get a student loan, apply for a credit card or even apply for a new job, bad credit can get in the way of achieving your goals. The good news is there are many things you can do to improve your credit score and dispel this dark cloud. Follow these steps to get your credit back on track:

Step 1: Assess the situation

It is very easy to shoot hand accounts and ignore their debt problems. But the first (and most important) step to financial responsibility is to face the facts. Request your annual credit report free from the FTC-authorized AnnualCreditReport.com site (or call 1-877-322-8228 toll-free) to receive a report from each of the major agencies: Equifax, Experian, and the TransUnion. Compare the reports and note any discrepancies or errors.

Step 2: Understand your credit utilization rate

After identifying all open credit lines, determine your credit utilization rate (also known as debt to credit ratio) on each card. Take your current credit balance card and divide by credit limit, then multiply that number by 100. If you owe $ 1,000 on a card with a limit of $ 10,000, your credit utilization rate is 10 %.

High credit utilization rates can have an adverse impact on your credit score1. One goal might be to have under-utilization of 25% on all lines of credit in your name. If one of its lines of credit have a utilization rate of 90% and the others are much lower, you can focus on paying down the one with a high usage rate first (assuming that all lines have a rate similar interest).

Step 3: Apply for a credit card

Sometimes past mistakes can keep you from building a positive credit history with regular credit cards. In this case, you might consider a credit card. With a secured card, you deposit an amount of money up front as a form of collateral to the lender. How do you use the card and do in regular payments of time you can establish a better credit record . When choosing a secured credit card to be sure of the company for each of the major credit bureaus.

Step 4: Avoid missed payments

Payment history is a major factor in your credit score to do your best to not miss payments on any existing or new debt2. Use online reminders from your lender and consider setting up automatic payments, if you have a value set in the budget for the amount of the debt each month.

If you are in a real dilemma to make a payment, contact your financial institution and talk to them about the possibility of extending the due date or receive a one-time late payment forgiveness. While it is important not to miss payments, avoid borrowing from high-interest lenders as this may prove to aggravate their debt problems rather than solve them.

Understand that ultimately pay a debt does not remove the payment history of your credit record. When you pay off debt, keeping an open line of credit can demonstrate responsible use of long-term (but perhaps store the card in a drawer if you do not want to use it)!

Step 5: establish credit Diverse

Once you've gotten a handle on consumer habits and responsible given your credit score a boost, consider diversifying your credit accounts. Changing insurance for an unsecured credit card and apply for a school loan or car if you need one. Demonstrating your ability to manage different types of credit can have a positive effect on your score.

That said, avoid opening several lines of credit, all at the same time. Each time you apply for a credit line, it creates a "new credit inquiry" on your credit file and many of these in a short period can have a negative impact on your credit score3. Keep this in mind, for example, with many store credit cards every place you buy frequently.

Rebuilding your credit takes time and dedication. Most credit reports back seven years, so it may take a long time to make significant improvements to your score. But asking your credit reports today and following these steps you can stop letting bad credit block back from your goals and dreams.