Reaping Your Rewards

How to rebuild credit in 5 (slow) steps


Don’t think of rebuilding bad credit as a race — slow and steady changes are needed. Time and patience are your allies

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How do you rebuild credit? While there is no such thing as a quick credit fix, here are five steps to take that can get you there:

  1. Review your credit reports and credit scores.
  2. Figure out what went wrong and fix it.
  3. Practice good credit habits to grow your score.
  4. Protect your existing accounts.
  5. Apply for new credit.

If negative items on a credit report drag down your credit score, the solutions — and the score gains that result — tend to be slow and steady. Time and patience are often your best allies as you adopt habits proven to help your credit score, and steer clear of moves that hurt it.

Here’s a breakdown of five steps to take to clean up your credit. They’re not fast, but unlike the imaginary quick-fix manual, they have one advantage: They work.

Rebuilding bad credit in 5 really slow steps

1. Look at your credit reports and credit scores

If your credit is wounded, the first step to healing is to rip off the bandage and examine the damage. Do this by requesting copies of your credit reports.

The three major credit reporting agencies — Equifax, Experian and TransUnion — each issue credit reports. Federal law entitles you to one free annual copy of your credit report from each agency. To find out more, go to

Ruth Hayden, financial consultant and author of “How to Turn Your Money Life Around,” urges you to go line by line through each credit report to make sure everything is correct.

Look for any errors, including things as seemingly insignificant as a wrong address or misspelling of your name, she says. If you find an error, the credit reporting agency must correct it at no charge to you. The resulting fix should improve your credit score.

Also, look for negative marks on your credit report from events that occurred many years ago. By law, negative notations have to come off your credit report after seven years, or 10 years with some liens and bankruptcies, says Anthony Sprauve, a FICO spokesman.

Getting access to your individual credit scores is easier than ever before. Credit bureaus charge for those, but some banks, credit unions and card issuers give them to customers for free. For a free copy of your VantageScore, go to; for a free FICO score, you can visit’s free Credit Scorecard tool. If you have been denied credit because of a poor credit score, whoever turned you down must give you a free copy of the score used in the decision.

There are many types of credit scores, but the best known are the FICO credit score and VantageScore. The most commonly used FICO and VantageScore scales run from 300 to 850. Each lender has slightly different requirements, but in general, a FICO score above 720 “is likely to get you the best rate,” says Sprauve.

Maxine Sweet, vice president of public education for Experian, says that with most versions of the VantageScore, “prime is considered 661 and above,” but scales and lender requirements vary.

2. Figure out where you went wrong and fix it

A big part of fixing your credit is determining what caused it to go “bad” in the first place. Was it one dramatic incident, like a short sale, foreclosure or bankruptcy? Or was the problem a series of smaller things, like late and missed payments that went on for a period of time?

Fortunately, you do not have to guess. Credit reports spell it out for you, although you have to read them carefully.

This process can be an eye-opener for many borrowers. Consumers often underestimate their total debt, says Norm Magnuson, vice president of public affairs for the Consumer Data Industry Association, a trade association for credit reporting companies. “When you see the report, that puts that right in front of you,” he says.

Another splash of cold reality can come from compiling a list of all your credit cards, their balances, the minimum payments and annual percentage rates, says Cathyann Frank, vice president of member experience and back-office operations for the McGraw-Hill Federal Credit Union. If you are outspending your income, your problem should become clear, though not easy to solve. If you have extraneous spending, cut back on it. If you’ve cut back as far as you can, you have to figure out a way to earn more.

3. Grow your score

There are also a few things you can do to increase your score. “People tend to underestimate the importance of making payments on time,” says Stephen Brobeck, executive director of the Consumer Federation of America.

A full 35 percent of your FICO score is based on whether you pay your bills on time, making it the largest factor that goes into a credit score. If your payment record is unblemished except for one rare late payment, Hayden suggests asking the creditor to remove it from your record as a courtesy.

Using your credit more sparingly also can boost your score. Even if you pay off the entire balance every month, your score can take a hit when you use more than 20 percent of your credit line, says Sprauve. One of the factors in a credit score is your “utilization ratio” — the percentage of your credit line you actually use each month compared to your total credit line.

That ratio makes up 30 percent of your FICO score, Sprauve says. The higher you run that balance in relation to your credit limit, the more damage it can do.

Take steps to keep your balance lower. For example, pay your credit card bill multiple times a month so the balance is always under 20 percent. Check with the issuer to make sure this is allowed.

Building an emergency fund and keeping it in a savings account also can keep you from running up your credit card balance. “As little as $500 is helpful,” says Brobeck.

4. Protect existing credit

If your credit is bad but you still have cards, do not close out accounts in hopes of raising your credit score. The age of your accounts can actually help boost your score. The older the account, the better, says Magnuson. “Keep the credit relationships you have,” he says.

If you have revolving balances, stop using those cards until you completely pay off your debt. During financially rough months, pay at least the minimum and pay it on time, says Sprauve.

If you have cards you use infrequently, keep the accounts open by charging something small to them once every three or four months. Then, pay the credit card bill in full immediately.

To boost your score, avoid applying for new credit, which can shave points from your score. Also, do not take cash advances, which issuers may interpret as signs of financial distress.

Paying late can torpedo your credit. So if you miss a due date on a loan (like a car or mortgage), call the lender to find out exactly how to cover the bill you missed, says Danielle Fagre Arlowe, senior vice president with the American Financial Services Association. Record the person’s name, the date and time you spoke, and any receipts or email from the transaction. Keep this information at least until you verify that it’s been noted correctly on your statement or credit report, she says.

If you make a credit card payment that is less than 30 days late and you do not have a history of being late, it won’t ding your credit, Arlowe says. But issuers can still assess a late fee and increase your interest rate for future purchases, she adds.

Falling 90 days behind in your payments — or even simply being chronically late by 30 days or more — will mark you as a high-risk borrower, Arlowe says.

5. Eventually, apply for new credit

If bad credit has cost you all your credit cards, eventually you may consider getting one or two new cards after you have repaired your credit a bit. Using credit cards responsibly can help demonstrate your financial turnaround and further boost your score.

However, taking on new credit is like handling dynamite: Know what you are doing, and move slowly. Even if you feel you can control your credit card payments, simply applying for credit can trim points from your score, says Sprauve. That can be tough if your score is already on the low side, or if you are now on the bubble for “good” credit. Applications stay on your credit history for two years, but only affect your FICO score for a year, he says.

Once you have taken control of the problem, consider adding a note to each credit report, says Hayden. In 100 words or less, tell your story. Give it your spin, but keep it truthful. Most importantly, emphasize actions — such as a long string of timely payments — that show you have changed your ways and are now more responsible and creditworthy.

Adding such a note will not change your actual score. But in cases where lenders review your file in person and “are on the fence, it could swing them” in your direction, Hayden says.

You probably will not qualify for a traditional, unsecured secured card unless your credit has rebounded somewhat. If you cannot get an unsecured card, consider a secured card. These cards require you to make a hefty, up-front deposit to the issuer.

Before applying for a secured card, verify that the card reports monthly to the credit bureaus, says Magnuson. Otherwise, using it will not build up your credit. Magnuson suggests looking for a secured card that converts to an unsecured card after a specific period of good behavior on your part.

Rebuilding credit takes patience. If you have had a big upset, like bankruptcy or foreclosure, it may take several years before your credit is restored, Magnuson says. But improving your financial behavior will pay off in the long run, he adds. “Time heals all wounds,” he says.

See related: FICO’s 5 factors: The components of a FICO credit score, How to dispute credit report errors, 4 ways to build credit without a credit card

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