Rebuild Bad Credit – A How To Guide

In order to rebuild bad credit, you need to take a two-pronged approach. You need to make sure every item on your credit report is accurate and then start building sound financial habits.

Clean Up Your Credit Report

First step to rebuild bad credit is to get a copy of your credit report and go over it with a fine tooth comb looking for any inaccuracies you can dispute with the credit reporting agencies.

The Fair Credit Reporting Act allows you to dispute items on your report that you deem inaccurate, so make the most of your rights and dispute those you feel are incorrect.

There is a sample dispute letter you can find on the website that’s highlighted below that you can copy and send to the credit agencies.

Develop Sound Financial Habits

Once you’ve dealt with your credit report, the next step to rebuild bad credit is to develop sound financial habits in your day to day life that will add points to your credit score.

Paying your bills on time is obvious, but it’s an important habit to develop as your payment history accounts for 35% of your credit score. That’s huge and just by being diligent and doing whatever you can to make sure payments are paid on time and not one day late, you can start turning your credit situation around.

Your recent bill paying activities add a lot of weight to having a good credit report so you really want to develop this sound financial habit if you are serious about improving your credit.

If you want to rebuild bad credit and you have credit cards, try to only use up to 50% of their credit limit. The amount of credit you have available also has an effect on your credit report, so do what you can to get these paid down to 50% of their limit as quickly as possible.

How to Rebuild Your Credit

These days it’s very important to have a good credit rating. Otherwise, you can’t get loans or mortgages or make the financial progress you want to make. You want to make sure you have the means to build your business or improve your home or send your children to college if these are your goals.

You also have to make sure that no one is stealing your information and using your credit to charge things. There are many identity thieves out there today who get hold of your financial information and ruin your credit rating before you even know what’s going on.

Therefore, it pays to go to websites to check your credit rating. You can do this for free once a year, so it’s well worth the investment of your time. You’ll get a free copy of your personal credit report. Look it over carefully. As with bank statements, you don’t want to presume all the information is correct. Look for errors. They may be accidental or they may show that some fraud is going on. In any event, report whatever you find that doesn’t look quite right.

For your part, you want to be paying your bills on time. Bill paying reliability is a significant percentage of your credit report, just over one-third of the total. It’s better to pay a little something on a bill or call and negotiate the amount you’re going to send rather than to just skip paying a bill or paying it late constantly. Don’t give up if you see that you have mismanaged your finances and have a bad credit report.

Call your creditors and begin to make amends. Determine that you’re going to be very responsible from now on and not buy anything that you can’t pay for within the month that the bill is due. You see that your past mistakes have brought you to a place where you feel powerless. Now you can claim your power again by building up your credit score so that you have nothing to be ashamed of.

How to Rebuild Your Credit Report and Wipe Out Bad Credit

A bad report puts you at a tremendous disadvantage in the world we live in. Fortunately there are ways to repair your credit history and relaunch yourself as a responsible consumer.

Your first step? Obtain copies of your report from the three major credit bureaus, TransUnion, Equifax and Experian. Review all items thoroughly. Is all the information correct and complete? Credit bureau databases are automated electronic systems. Mistakes happen all the time, and any mistake can provide grounds for successfully disputing an item.

Along with your history, the credit bureau should have sent you a form to fill out in case you want to dispute any of the items on the report. Make as many copies as you need to cover any items you’re disputing, and when you mail the forms to the bureaus, be sure to request return receipts so you have an accurate record of each communication you initiate with these ones.

The Fair Credit Reporting Act requires an investigation of any item on your credit report that you dispute. The credit bureaus only have a finite amount of time for this investigation. If an item can’t be verified within that time frame, then it must be erased from your files.

But cleaning up the negative items is only the first stage in rebuilding your scores. Next you must reestablish yourself as someone who knows how to use credit responsibly.

One of the best ways to do this is by taking out a small, secured loan backed by funds in a savings account. When the loan is repaid, you security deposit becomes your own again – and you have a positive mark on your credit report.

Next apply for a credit card. With a low credit rating, you may have a hard time receiving one from a major bank but you still have options. Department store charge cards and gas credit cards may be easier to obtain but in order to receive the maximum benefit to your rating never apply for more than two, never charge more than 20% of your credit limit, and always pay off the cards on time and in full.

Another option for the individual rebuilding his or her credit is a secured credit card which requires you to make a cash deposit as security against default. Generally the deposit will be 100% or 200% of your spending limit. The good news is that if you make your payments in a timely fashion, a secured card can often be converted into an unsecured card at the end of one year.

Finally there are those cards specifically designed for people with low credit scores. Be very careful using these. They often have extremely high interest rates and unexpected fees; if you find yourself in a situation where you can’t keep up with these, you may find yourself damaging your rating even further.