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Rebuilding Your Credit

Whether you have a bankruptcy in your past, or have just gotten yourself into a bad credit situation, sooner or later you are going to want to start thinking about rebuilding your credit score.

There’s no such thing as a quick fix to a less-than-wonderful credit score, however. You will have to work on improving your credit gradually and over time. Be patient, stick to your plan, and you will see improvement.

A credit score is a living thing: always changing depending on your actions. Those actions can cause your credit score to steadily improve (or decline).

Examine the damage.
First, find out exactly what your credit reports look like, and what your credit history is.

Order and review your credit reports to make sure all the information included is correct. You are entitled under law to a free copy each year of your credit report from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion. Request your reports at


Your credit report includes: Companies that have extended credit to you; the amounts of your loans and credit limits; your payment history; who has requested a copy of your credit report; your employment history and your addresses. Make sure all items are correct. Things to look out for: Did a credit card company make a mistake about when you made your payments? Is your address correct in all cases, and is your name spelled correctly? Are the credit accounts listed ones you took out? Has someone requested your credit report who you don’t recognize?

If you find any errors, report them to the agency—they must correct these at no charge to you.

Negative credit marks must fall off your credit report after seven years (ten years for some bankruptcies, liens, or penalties). Review your reports to make sure there are no marks older than that. Again, if there are, contact the agency–they must correct those for you.

If you can, find out what your FICO score is. Your FICO credit score is a number that comes from an analysis of your credit reports from the credit agencies. You may have to pay a credit bureau to find out your credit score, but you may also be able to get it for free from some banks or credit card issuers. If you have been denied credit because of a low FICO score, that company must give you a copy of the report upon which they based their decision.

The FICO score number ranges from 300 (bad credit) to 850 (fabulous credit). Most credit-worthy people have a score in the 700s. The lowest score that is still credit-worthy is 640, but that has been trending up to sometimes 740 for some companies and in some situations.

Where you are right now.
Now that you know your history and how credit agencies perceive you, it’s time to take a look at your current situation.


Review your debts, if you have any, and make a plan to pay them off as aggressively as you can. Pay down your loans, especially your credit cards: Make your payments regularly, and get your loan balance below 10-30% of your credit limit. Try to have an account or two where you owe nothing.

Manage your late payments or debts that went to collection: If you’re normally a good customer, ask the company to erase that one late payment record. See if you can “re-age” your account by making steady payments for a determined period of time. Dispute items marked as “collection” if that’s not what happened.

Protect your existing credit.
Pay on time, and pay at least the minimum amount due. Set up automatic payments if you have trouble remembering when to pay your bills.

If you have credit cards that you rarely use, and that are not carrying a balance, make a small purchase every few months (and promptly pay it off), to keep those accounts open. Using your credit cards once in a while (and paying them off that month) ensures that all your credit (and good credit behavior) continues to get reported to the credit bureaus.

Don’t apply for new credit until you have made significant progress on resolving your bad credit history.

Don’t take cash advances from your credit cards—this can be seen as a sign of financial distress, as will transferring balances between credit cards.

Don’t ask your credit card company to lower your credit limit.

Don’t revert to bad behavior.
Make sure that you are not repeating any behaviors that got you into a bad credit situation in the first place.

Pay your bills on time.

Pay at least the minimum due on all your bills, and don’t skip payments.

Don’t outspend your income. If you have trouble with this one, create a budget and be ruthless about not exceeding it.

Start building for the future.
Now is when you want to start thinking about what you can do to improve your credit score.

Pay your bills on time (are you sensing a theme here?)

Use no more than 20% of your credit limits. This is your utilization ratio, and going higher than that can ding your credit score. If you use your credit card frequently (and pay it off each month), try making a few payments throughout the month to keep your utilization ratio below 20% at any given time.

Establish a separate emergency fund, so you won’t have to resort to your credit cards.

If you don’t currently have a credit card, take out a secured credit card (you deposit an amount of money to be used for your credit line), and choose one that reports to all three credit bureaus.

Even though you are now on the right credit path, be careful about applying for new credit. Yes, you will want to at some point, but you need to time it well, and make sure you can handle it. Applying for new credit can knock points off your credit score, and will affect your score for the next year. So go slowly, and be aware of just where your credit score is.

It takes time.
Remember that repairing and improving your credit score, and your ability to get a loan, will take time. The exact amount of time depends on what your specific financial situation has been—if you’ve had delinquencies or bankruptcy, it will take longer.

But be patient and keep at it—a good credit score is achievable for everyone!

Questions? Just stop by any PayDayHawaii location for more information on any of these topics.

This entry was posted in Financial Education, Selecting and Using Credit, Smart Shopping and Budgeting. Bookmark the permalink.

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