How do I Build & Repair My Credit Score?

Building, maintaining and occasionally cleaning up a credit report is important for financial security. The best way to begin this process is to access a recent copy of your credit report and review your borrowing behavior. When you apply for loans or housing, lenders and landlords will scrutinize this report. It's best to know what is on it. If you have problems on your report, you must first prioritize them, and then take steps to fix them and ensure they do not occur again.

Instructions

1

Pull your credit report from Annualcreditreport.com. This is the government's free credit report website. You should also pay for a FICO score--a three-digit number between 300 and 850. This score represents your overall credit standing. Scores over 700 are excellent, and scores below 600 are poor.

2

Look for the negative marks on your report. These include any public records (bankruptcies, charge-offs and judgments), past due payments (over 30 days overdue) and over-limit credit cards. It can also include tax liens from either the state or federal government.

3

Triage these problems. The most pressing concern will be tax liens, if you have any. The government can take more invasive collection measures than private lenders, including wage garnishments and bank account levies. Prioritize the problems before attacking them.

4

Work up a new budget. The key to changing your credit is changing your borrowing behavior. Cut out most of your non-essential expenses. Review your bank statements to review your past expenses. Work up a new budget based on credit repayment.

5

Repay the poorest debt first. You can consider debt settlement (whereby you settle for a lesser amount than what is due), but this will significantly reduce your credit score further. Use the "snowballing" strategy. This requires minimum payments on all accounts you are not attacking, and huge payments against the account on which you are focused.

6

Repeat the "snowballing" strategy when the first account is repaid. This will free up even more income to use against the credit debt. Continue this process with each delinquent and poor credit account until you have repaid all past due debt.

7

Focus on your revolving accounts once you have cleaned up your delinquent debt. In order to rebuild your credit, you must manage your revolving accounts carefully. Keep your balances on these accounts very low--well below 50 percent utilized. For example, if you have a credit card with a $5,000 limit, you should never carry a balance over $2,500.

8

Ask your creditors to raise your credit limits. Increasing the cushion between your balance and the credit limit will improve your FICO score. Also ask for lower interest rates. This will not affect your credit, but it will save you money.