Delinquent accounts, charge-offs, excessive credit inquiries—all these negatively drag down your credit report.
There are hundreds of companies that promise to "fix" your score overnight in exchange for hefty fees. But the truth is, you can do this yourself for free with just a little patience and caution.
Before attempting to fix your credit, the absolute first step is to pull your credit report from all three major bureaus (Equifax, Experian, TransUnion). As a consumer, you are legally entitled to receive one free report annually. Check them closely for inaccuracies. If you find misinformation, dispute it immediately. The less inaccurate negative information present, the better your score will be.
5 Smart Ways to Rebuild Credit
- Paying off debts wisely: While staying current on your mortgage and auto loan is important, aggressively paying down revolving credit card debt can help improve your score the fastest. Keeping your balance below 30% of the total credit limit is the "sweet spot" for accelerating your score.
- Reporting correct limits: Your credit score is heavily affected by the credit limits reported to the agencies. If a bank reports a lower, incorrect limit, it makes your utilization ratio look much worse. Monitor your report to ensure your limits are reported accurately.
- Keep older accounts open: Your credit score depends heavily on the length of your payment history. Creditors love seeing old accounts in good standing. Avoid the temptation to close your oldest credit cards, even if you rarely use them.
- Avoid maxing out cards: Try to never use your cards to their maximum limits. Maxed-out credit cards present a highly desperate picture to creditors and are detrimental to your score.
- Dispute old entries: A negative entry should legally fall off your report after 7 years. Keep a strict watch on these entries. If they are not removed automatically, you must dispute them. Furthermore, if you have been a loyal customer, you can ask a bank for a "goodwill removal" of a single late payment.
Using Secured Credit Cards
If your credit is too damaged to qualify for a traditional credit card, a Secured Credit Card is your best rebuilding tool. Offered by most major banks, opening a secured card requires depositing a set amount of cash into a locked account.
For example, you open the account with a $500 deposit, and your card limit is mathematically set to $500. The deposit will not be touched unless you completely fail to make your monthly payment.
- Functions like a regular card: You can use it at grocery stores, for online purchases, and it will carry standard Visa, MasterCard, or Discover logos. Nobody will know it is "secured."
- Establishes new trade lines: If you use the card to make small purchases and pay the bill off in full every month, the bank reports this positive behavior to the credit bureaus, actively rebuilding your score.
Important: Ensure you select a secured card from a bank that explicitly states they report to all three major credit bureaus!
Building Credit for Young Adults
Secured cards aren't just for rebuilding; they are the perfect entry-level tool for college students and young adults who have a "thin" credit file (no credit history at all).
If you want to help your young adult child establish credit without the massive risk of them spending beyond their means, a secured card is the ultimate alternative. With a hard limit of $500, they can learn the responsibility of budgeting and paying monthly bills without the risk of their balance ballooning out of control.
Live Within Your Means
Your credit score is the most important determinant of your financial worthiness in the modern economy. If you have a poor score, you will pay significantly more in interest for auto loans, mortgages, and insurance.
Take special care to keep your report unblemished moving forward. Do not be careless with your bills, and ruthlessly commit to living within your actual financial means.
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DebtCC Staff
Our credit repair specialists outline proven, DIY strategies to help consumers safely rebuild their credit scores and escape the trap of predatory repair agencies.