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5 steps to rebuilding credit

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It doesn’t take much to trash your credit score. A few late credit card payments or a wild borrowing spree can send your rating south, making it impossible to get the best rates on a loan.

A low credit score also can hurt you in other ways, ranging from keeping you from getting an apartment to hampering your efforts to get a job.

Fortunately, bruised credit can heal over time. And there are several things you can do to help rebuild your credit faster.

“I’ve seen consumers make significant progress on their credit scores in as little as a year or two,” says Gerri Detweiler, a long-time credit expert and education director at NAV, which helps small business owners manage their credit and access financing.

Following are five steps to rebuilding your credit score:

1. Make your payments on time, every time

Perhaps the easiest way to raise your credit score is simply to pay bills on time – without fail.

The FICO score is the most commonly used credit score in America. And when calculating your score, nothing carries more weight than your payment history, which makes up 35% of the scoring formula.

Why does your payment history count for so much? “The first thing any lender wants to know is…whether your credit payments have been made on time,” says the website for MyFICO, the consumer division of FICO, which created the score that bears its name.

MyFICO notes that one or two late payments might not harm your score if your credit history is otherwise solid. But anything beyond that is flirting with trouble.

Making your payments on time consistently is the fastest and surest path to rebuilding your credit score.

2. Pay down your debts as quickly as you can

Running up a lot of debt will send your credit score south. “As your balances creep up, your credit scores may go down,” Detweiler says.

That’s because the amount of money you owe accounts for 30% of your FICO score.

“The good news is that if you pay down these balances, your credit scores may change quickly,” Detweiler says.

Your credit score is based on information available at the time the score is calculated. So, if you pay down a large portion of your credit card debt, your score will be recalculated once the credit card issuer reports the new balances to the credit reporting agencies, Detweiler says.

3. Look for mistakes on your credit report

Credit reporting agencies use the information in your credit report when calculating your credit score. Sometimes, errors creep into your report. In fact, a 2013 Federal Trade Commission report found that 1 in 5 Americans has an error on their credit reports.

These errors have the potential to drive down your credit score. The FTC report found that for around 5% of people with errors in their reports, the damage to their credit history is severe enough that they end up paying too much for things such as credit card debts, auto loans and insurance policies.

Federal law states that each year, you are entitled to one free copy of your credit report from each of the three major credit reporting agencies – Equifax, Experian and TransUnion. You can order these reports at no cost by visiting the AnnualCreditReport.com website.

Once you receive the reports, search them for errors. If you find a mistake in one of your reports, let the credit reporting agency know, and request a fix. Once the error is eliminated from the report, your score should rise.

4. Know the rules – and use them to your advantage

Sometimes, the best way to boost your credit score is simply to take advantage of opportunities that the government or the law offer to repair damaged credit.

For example, if you have a federal tax lien, you might be able to get it removed from your credit reports even if the debt is not paid off.

“If you qualify for the IRS Fresh Start program, you can ask to have the tax lien withdrawn,” Detweiler says. “Once it is withdrawn, you can ask that it be removed (from your report).”

To make sure you are exhausting all options to fix your credit, consider consulting with expert. You can find one by using the tool at the website for the National Foundation for Credit Counseling.

5. Be patient

Everyone wants to see their bruised credit heal itself overnight. But that’s not realistic.

Instead, you’ll need to exercise a little patience when rebuilding your credit score.

“With most credit scoring models, payment history in the most recent 24 months carries the most weight,” Detweiler says. “Older information still counts, but not as much as recent information.”

So, building good habits today might not bear fruit until a couple of years into the future. But it will pay off eventually if you continue to handle credit responsibly.

“Focus on keeping debt levels on credit cards low, and paying bills on time,” Detweiler says.

Chris Kissell

Chris Kissell has been a writer and editor for more than two decades. His work has appeared in numerous newspapers and magazines, and on many news and financial websites. He lives in Denver, Colorado.