How to Restore a Credit Score
If you have damaged credit, it can be difficult to buy a home or car, rent a car or even find a new job. Restoring your credit score can be difficult and requires a great deal of patience. However, with diligence and effort, it's possible to regain a good credit rating, even after foreclosure or bankruptcy.
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Things You'll Need
- Credit reports from Equifax, Experian and TransUnion
- Recent tax returns
- Utility and other bills
- Co-signers or other financial references
- Collateral for loans
- Payment receipts
Instructions
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Rebuilding Damaged Credit
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Obtain copies of your credit report. Get reports from all three major credit reporting agencies: TransUnion, Equifax and Experian. Check each report carefully. Obtain your actual credit score from each reporting agency because scores can vary. Take an accurate assessment of your total budget from past tax returns, bills and other financial records.
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Dispute inaccurate items. You will need to contact the credit reporting bureau in writing. Be prepared to show proof to support your claim: copies of receipts, a statement that an address is incorrect or other evidence that a derogatory item should be removed.
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3
Contact creditors. For unpaid charges which are accurate, it's better to try to pay them off or work out a settlement arrangement. Some creditors will be happy to accept a fraction of the total debt to close out the account. Make all payments on time and be sure the arrangements and your payment record are reported to the credit bureaus.
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4
Establish positive credit accounts. Consider secured credit cards or a bank loan guaranteed with collateral. A friend or relative with good credit may be willing to be a co-signer for a loan or credit card. Be sure to make payments on time, and try to pay more than the minimum monthly amount billed.
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Consider working with a credit counselor. Reputable credit counselors are usually nonprofit agencies. They can work with you to establish payment plans that fit your budget and can often persuade creditors to reduce or eliminate interest and penalty charges.
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Be patient. Rebuilding credit takes time. However, as your credit improves, you will be able exchange secured credit cards for unsecured credit cards. Even after a bankruptcy, it's possible to achieve a credit score in the mid to upper 600 range within 3 years, which is good enough to qualify for a mortgage. After 4 years, you could achieve a credit rating above 700, which is considered excellent credit.
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Tips & Warnings
Every consumer is entitled to a free credit report annually from each of the three major credit reporting agencies by logging onto AnnualCreditReport.com. Seek a credit report from one of the three major agencies once every four months. You are permitted to get one report per year from each reporting agency. The effect of derogatory items on your overall credit rating decreases over time. A good recent credit history will counterbalance a bad credit past. It's a good idea to obtain your actual credit score along with your credit report, even though there is usually a charge for it.
Beware of "credit repair agencies" which promise to remove derogatory items from your credit report quickly. Except for inaccurate items, derogatory items cannot be removed. Some credit counselors work mostly as collection agencies for credit card companies. Even reputable credit counselors may emphasize repayment plans when bankruptcy is actually a better option. Beware of advertised "free" credit reports which actually require you to purchase a credit protection or similar service in exchange for your credit report.
