How to Rebuild Personal Credit

Expect to spend at least one to two years rebuilding your credit.

The best way to rebuild your credit is to start paying your bills on time month after month. A consistent record of on-time payments for 12 to 24 months will help improve your credit score and indicate to creditors that you have recovered from past credit problems. Along the way, there are other measures you can take, including establishing new credit accounts. New credit accounts are possible even if you are just now recovering from your past credit problems.

Instructions

1. Make payments to bring all your active accounts current. Also, resolve any issues still remaining from past credit troubles. Satisfy any judgments or liens, and pay off any accounts that were charged off by credit card companies or other lenders.

2. Apply for a secured MasterCard or Visa credit card. Secured credit cards are generally easy to qualify for because you are required to place money in a savings account as collateral. The amount on deposit becomes your credit line, and the card company reports your payment history to the credit bureau. By opening the account and paying on time each month, you'll instantly create a positive credit line. Open a secured savings account at your bank or credit union. After several months, open a second secured credit card account.

3. Apply for an installment loan from your bank or credit union using additional money in your savings account as collateral. Secured installment loans are also easy to qualify for because there is no risk to the lender. If you default on the loan the bank takes the money from your savings account. Deposit the proceeds from the loan into your checking or savings account and direct the bank to automatically draft your payment each month. That will make sure that your payments are on time and prevent you from misusing the money from the loan.

4. Apply for unsecured credit after about a year. Start with gas stations or department store cards. Later, apply for an unsecured MasterCard or Visa. Keep your balances low, which can also boost your score, and avoid taking on too much credit. Paying a small number of credit accounts on time while maintaining low balances is all you need to rebuild your credit.

References

• Federal Trade Commission: Knee Deep In Debt
• Microsoft Money: Bounce Back Fast After Bankruptcy
• NOLO: Rebuilding Credit