5 Tips For Rebuilding A Damaged Credit Score

by Redeeming Riches on April 16, 2012

Are you under the impression that your credit score has been damaged beyond repair? Although you may have made poor money management decisions in the past, you’ll be glad to hear that this does not mean your credit score has to be tarnished forever.

Believe it or not, you can begin to rebuild your credit score today. It may take a couple of years (or longer) to bring your score back to where it once was, but as it begins to climb you will realize that you are doing the right thing.

Here are five tips for rebuilding a damaged credit score:

1. Start paying every bill on time, no matter what it takes

There is a good chance that late payments are a big contributor to your low score. If you truly want to improve your credit score, there is no better time than now to start paying each and every bill on time. Once you get on a schedule you will find that paying on time is not nearly as difficult as you once believed.

2. Reduce your debt-to-available credit ratio

Pay Do you have a revolving account, such as a credit card, on your credit report? If so, it is time to work on paying these off. Lenders like to see a gap between your available credit limit and the amount you are currently using. It helps when your balance gets below 20 percent of the credit limit on each card.

Note: most people recommend paying off the credit card with the highest interest rate first. While this is a good strategy, if your goal is to improve your credit score you should instead pay down the cards that are closest to being maxed out. DaveRamsey.com has an excellent guide to getting out of credit card debt using a tried and tested technique.

3. Don’t rack up big balances on your credit cards

Even if you pay your bill in full every month, this can harm your credit score. When you are trying to repair a damaged score, you don’t want to do anything that could hold you back. Your best bet is to avoid using your credit card altogether. Instead, focus on paying down the debt that you already have (see tip #2 above).

4. Check the accuracy of your credit limit

Is your credit card limit accurate on your credit report? Your score may be lower than it should be if your lender is reporting a lower limit than what you have. All you have to do is ask your credit card company to make this change. With this increase, you will now show a lower percentage of debt to credit limit. You can read more about how reducing your credit limit can affect your financial situation at Finance Choices.

5. Review your credit report for errors

You may not believe it, but there could be at least one error on your credit report which is currently holding you back from bettering your score.

Some of the things that are worth correcting include: late payments that are not accurate; accounts that are listed as “paid charge-off”, “paid derogatory”, or “settled” if you paid in full and on time; and negative items that are older than seven years (after seven years, these items should be automatically removed from your credit score).

While these five tips can help you rebuild a damaged credit score, there is one thing that you cannot do without: the willingness and determination necessary to reach your goal!

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