Rebuilding Your Credit Report – Part I

People who have been through a financial crisis—bankruptcy, repossession, foreclosure, history of late payments, IRS lien or levy or something similar—may think they won’t ever get credit again. This is certainly not true. By following some simple steps, you can rebuild your credit in just a couple of years.

After you’ve cleaned up your credit report, here are some suggestions for rebuilding your credit:

Send in Positive Information for Your Report

If your credit report is missing accounts that you have paid on time, send the credit bureaus a recent account statement and copies of canceled checks showing your payment history. Ask that these be added to your report. The credit bureau doesn’t have to, but often they will.

Creditors like to see evidence of stability, so send the following to the bureaus: your current employment, your previous employment (especially if you’ve been at your current job fewer than two years), your current residence, your telephone number, your date of birth and your checking account number. Again, the credit bureau doesn’t have to add these.

Acquire New Credit and Use It Responsibly

You can use new credit to rebuild your old credit standing. The one type of positive information creditors like to see in credit reports is credit payment history. If you have a credit card, use it every month. Don’t charge as much as your credit limit allows, but make small purchases and pay them off to avoid interest charges.

If you don’t have a credit card, apply for one. If your application is rejected, try to find a cosigner or apply for a secured card, where you deposit some money into a savings account and then get a credit card with a line of credit around the amount you deposited. Using credit is good, because it demonstrates your ability and willingness to pay your bills. You must have some credit history to have a credit score.

Once you succeed in getting a credit card, you might be hungry to apply for many more cards, but be careful here. Having too much credit may have contributed to your debt problems in the first place. Ideally, you should carry one or two bank credit cards, maybe one department store card and one gasoline card. This should be sufficient for most families.

Your inclination may be to charge everything on your bankcard and not bother using a department store or gasoline card. Lenders view charge accounts or home equity lines of credit that you’re not using as a risk that you could go on a spending jag at any time. When creditors look into your credit file, they want to see that you can handle more than one credit account at a time. You don’t need to build up interest charges on these cards, but use them and pay the bill in full.

Please be aware that if your credit applications are turned down, your file will contain inquiries from the companies that rejected you. Your credit file will look like you were desperately trying to get credit, something creditors never like to see.

Your thoughts on this subject? Your comments appreciated!

Content © Rich Brott, 2011

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