How to Rebuild Your Credit Score After Debt Problems[yoast-breadcrumb]
How to Rebuild Your Credit Score After Debt Problems
If you’ve struggled with debt in the past, you know how much it can hurt your credit score. A low credit score makes it harder to get approved for loans, credit cards, apartments, and more. The good news is, with some time and effort, you can rebuild your credit and improve your score. Here are some tips to get you started:
Check your credit report
The first step is getting a copy of your credit report so you can see exactly what’s dragging down your score. You can get free copies from AnnualCreditReport.com. Review the report and look for any errors that you can dispute. Also make note of all your accounts – you’ll need to bring any delinquent accounts current.
Pay down balances
A big factor in your credit score is your credit utilization ratio – how much of your total available credit you’re using. Try to get your balances below 30% of your credit limit on each card. Paying down balances can give your score an immediate boost.
Ask for goodwill deletions
If you have late payments or other negative marks on your report, you can try writing goodwill letters to your creditors asking them to remove the negatives. Explain the circumstances that led to the late payments and emphasize you’ve learned from the experience. This tactic works best if you’ve been a long-time customer with a good history.
Become an authorized user
Ask a family member with good credit to add you as an authorized user on one of their credit cards. As an authorized user, their account history will be added to your credit report, giving your score a boost. Just be sure they have good spending habits!
Dispute collection accounts
If you have unpaid collections accounts on your report, don’t ignore them – dispute them! Disputing removes the account from your report until the collection agency verifies it. The collector may not respond, in which case the account gets deleted. Or they may agree to delete it in exchange for partial payment.
Get secured credit cards
Secured cards require a cash deposit upfront, but they’re one of the easiest ways to rebuild credit. Use the card sparingly and pay it off each month. In 6-12 months you may qualify to upgrade to an unsecured card and get your deposit back.
Become an account holder
If you’re rebuilding credit from no credit history, becoming an account holder can establish your credit file. Ask to be added as an account holder on a friend’s or family member’s existing credit card. You get the benefit of their credit history without being responsible for the debt.
Take out a credit-builder loan
Credit-builder loans allow you to demonstrate responsible payment behavior. The lender reports your monthly payments to the credit bureaus, building your credit history. And the interest you pay goes into a savings account that you get back at the end of the loan term.
Limit new credit applications
It can be tempting to apply for lots of new credit as you rebuild, but too many inquiries can hurt your score. Apply for no more than one new account every six months. And don’t open new accounts you don’t need.
Review account terms
Carefully review the terms on any new accounts you open. Things like annual fees, penalty APRs, and low credit limits can work against you. Opt for accounts with no annual fee and a higher credit limit when possible.
Pay on time every time
Payment history is the biggest factor in your score. Set up autopay or calendar reminders to ensure you never miss a payment. Even one late payment can drop your score significantly.
Rebuilding your credit takes time, but staying diligent with on-time payments and keeping balances low will start moving your score back up. Be patient and persistent – you’ll get there!