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Good credit can make many of life's financial situations easier and less costly. For example, with good credit, you can get approved for a mortgage or auto loan, and possibly qualify for the best available interest rates and terms. A good credit score can also affect how much you pay for insurance, and whether a utility company asks for little or no deposit before starting a service for you.

If you've made financial missteps in the past, your credit scores might not be as high as you'd like. While you won't be able to instantly delete these past negative items from your credit report if they're accurate, you can take steps to rebuild a more positive credit history starting today, and improve your credit going forward.


What's Influencing Your Credit Scores?


Many factors can influence credit scores. Some of the most common credit scoring factors are:

  • Payment history — a record that includes the on-time payments you make as well as late or missed payments.
  • Credit utilization ratio — compares the total amount of credit you have available to you with how much of it you're actually using right now.
  • Total debt — the total amount of debt you have, including credit cards, loans, collections, and other credit accounts.
  • Mix — the types of credit accounts you're using.
  • Age — how old your credit accounts are.
  • Hard inquiries — your recent applications for new credit.
  • Public records — such as bankruptcies or civil judgments.

The best way to know what factors are affecting your credit scores is to look over them often - and you can check your credit score from Experian. You'll get a list of the credit score factors that are impacting this score the most. If you're trying to improve your credit scores, you should consider tackling these factors first.

Good credit can make many of life's financial situations easier and less costly. For example, with good credit, you can get approved for a mortgage or auto loan, and possibly qualify for the best available interest rates and terms. A good credit score can also affect how much you pay for insurance, and whether a utility company asks for little or no deposit before starting a service for you.

If you've made financial missteps in the past, your credit scores might not be as high as you'd like. While you won't be able to instantly delete these past negative items from your credit report if they're accurate, you can take steps to rebuild a more positive credit history starting today and improve your credit going forward.

Improving your credit score can mean qualifying for lower interest rates and better terms. That's true whether you need a good credit score to borrow money for personal reasons (a home loan, a car loan, to get a credit card, etc) or so you can purchase inventory, lease a facility, etc., to start or grow your business.

The problem is, credit repair is a little like improving your professional network: You only think about it when it matters. But if you don't have good credit, it's nearly impossible to correct that situation overnight.

That's why the time to start repairing your credit is now before you really need it. Fortunately, it's not to hard to improve your credit score.

Here's a simple process you can follow:

1. Review your credit reports.

The credit bureaus TransUnion, Federal Trade Commission (FTC), and Experian are required to give you a free copy of your report once a year. All you have to do is ask. (Click the links to request a copy.)

Once you've signed up, you can see your credit scores and view the information contained in the reports. Generally speaking, the entries on the different reports will be the same, but not always. For a variety of reasons, credit reports are rarely identical. You can also check that the Credit card reaport really work by using the credit card generator and generat the report and Review the credit report.

2. Dispute negative marks

In the old days, you had to write letters to the credit bureaus if you wanted to dispute errors. Just make sure you get the most bang for your dispute efforts. Certain factors weigh more heavily on your credit score than others, so pay attention to those items first.

Start with derogatory marks like collection accounts and judgments. It's not uncommon to have at least one collection account appear on your report. I had two from health care providers I used after having a heart attack; my insurance company kept claiming it had paid while the providers said it had not, and eventually the accounts ended up with a collection agency. Eventually, I decided to pay the providers and argue with the insurance company later, but both collections wound up on my credit report.

Fixing those problems was easy. I clicked the "Dispute" button, selected "The creditor agreed to remove my liability on this account," and within a week the dispute was resolved and the entry was removed from my credit report.

You can also dispute errors through each credit bureau. If that's your preference, go here for TransUnion, here for Equifax, and here for Experian.

Keep in mind some disputes will take longer than others. But that's OK. Once you initiate a dispute, you're done: The credit bureaus are required to investigate it and report the resolution.

Spend as much time as it takes trying to have derogatory marks removed because they also weigh heavily on your overall score.

3. Dispute incorrect late-payment entries

Mistakes happen. Your mortgage lender may report a payment was late that was in fact paid on time. A credit card provider may fail to enter a payment correctly.

You can dispute late payments whether in accounts that are current or accounts that have been closed the same way you dispute derogatory marks.

Your payment history is another factor that weighs heavily on your credit score, so work hard to clean up those errors.

4. Decide if you want to play the game some credit repair companies play

So far we've discussed trying to remove inaccurate information only. You can, if you choose, also dispute accurate information.

For example, say an account went to collection, you never paid it, and the collection agency gave up. All that remains is the entry on your credit report. You can still choose to dispute the entry. Many people do. And sometimes those entries will get removed.

Why? When you enter a dispute the credit bureau asks the creditor to verify the information. Some will. Many, like collection agencies, will not. They'll simply ignore the request and if they do ignore the request, the agency is required to remove the entry from your credit report.

What that means is that smaller firms, like collection agencies or local lenders or small to midsize service providers, are less likely to respond to the credit bureaus. It's a hassle they don't need. Banks, credit card companies, auto finance companies, and mortgage lenders are a lot more likely to respond.

So if you want and I'm not recommending this, I'm just saying it's a strategy some people decide to use you can dispute information in the hope the creditor will not respond. (This is the strategy many credit repair firms use to try to improve their clients' scores.) If the creditor doesn't respond, the entry gets removed.

Should you take this approach? That's up to you. (You could argue I shouldn't even mention it, but it is something many people do, so I felt it worth mentioning.)

5. Ask nicely

Maybe you tried and failed to remove a negative comment, a late payment, or an account that was marked "Paid as agreed" (which might mean the creditor agreed to let you pay less than you owed). Should you give up? Nope. Try asking nicely.

Creditors can instruct credit bureaus to remove entries from your credit report at any time. For example, I hadn't charged anything on a particular credit card for months and didn't notice that I had been charged my annual fee until the payment was late. (Like a doofus, I was just tossing the statements without opening them because I "knew" there were no charges.)

The late payment showed up on my credit report, so I called the credit card company, explained what had happened, that I had been a customer for years, and asked if they would remove the entry. They said sure. And they also agreed to waive all annual fees in the future. (Proving yet again that if you don't ask, you don't get.)

When all else fails, call and ask nicely. You'll be surprised by how often a polite request for help pays off.

6. Increase credit limits

Another factor that weighs heavily on your credit score is your credit card utilization: The ratio of available credit to credit used makes a big difference. Generally speaking, carrying a balance of more than 50 percent of your available credit will negatively impact your score. Maxing out your cards will definitely hurt your score.

One way to improve your ratio is to pay down your balances, but another way is to increase your credit limit. If you owe $2,500 on a card with a $5,000 limit and you get the limit increased to $7,500, your ratio instantly improves.

To get credit limits increased, call and ask nicely. If you have a decent payment history, most credit card companies will be more than happy to increase your limit, after all, they want you to carry a high balance. That's how they make money.

Just make sure you don't actually use the additional available credit because then you'll be back in the same available credit ratio boat... and you'll be deeper in debt.

7. Open another credit card account

Another way to increase your credit card utilization ratio is to open a new account. As long as you don't carry a balance on that card, your available credit immediately increases by that card's limit.

Try to get a card that doesn't charge an annual fee, though. Your best bet is through a bank where you already have an account. Granted, cards with no annual fee tend to charge higher interest rates, but if you never carry a balance, the interest rate is irrelevant.

But again, be smart: The goal isn't to get access to more cash, the goal is to improve your credit score. If you think you'll be tempted to run up a balance on a new account, don't open one.

8. Pay down outstanding balances

I know. You need a higher credit score because you want to borrow money; if you had the money to pay down your balances, then you might not need to borrow.

Still: decreasing your percentage of available credit used can make a quick and significant impact on your credit score. So go on a bare-bones budget to free up cash to pay down your balance. Or sell something.

Paying down balances may be tough to pull off as a short-term move to increase your credit score, but it should be part of your long-term financial plan. Not only will your credit score increase over time, but you also won't pay as much interest which, if you think about it, is just giving lenders money you would rather have stayed in your pocket.

9. Pay off high-interest, "new" credit accounts first

Age of credit matters to your credit report. Interest rates matter to your bank account. If you have $100 a month to put toward paying down balances (over and above the required monthly payments, of course), focus on paying off high-interest accounts. Then prioritize those by the age of the account. Pay off the newest ones first; that way you'll increase the average length of credit, which should help your score, but you'll also be able to more quickly avoid paying relatively high interest.

Then put the money not spent on that payment into the next account on your list. The debt snowball method" system really does work.

10. Ride some great credit coattails

Say your spouse has a credit card with little or no balance and great payment history; if he or she agrees to add you as an authorized user, from a credit score point of view you automatically benefit from her card's available credit as well as her payment history.

Keep in mind if he or she makes a late payment, that entry will appear as negative on your credit report too.

So choose your credit card friends wisely.

11. Keep your "old" credit cards

Your age of credit history has a moderate but still meaningful impact on your credit score. Say you've had a certain credit card for 10 years; closing that account may decrease your overall average credit history and negatively impact your score, especially over the short term.

If you're hoping to increase your credit score but you also need to get rid of a credit card account, get rid of your newest card.

12. Pay every bill on time

Even one late payment can hurt your score. Do everything you can, from this day on, to always pay your bills on time.

And if one month you aren't able to pay everything on time, be smart about which bills you pay late. Your mortgage lender or credit card provider will definitely report a late payment to the credit bureaus, but utilities and cell providers likely will not.

Check the Accounts section on your credit reports to see which accounts are listed and if you have to pay late, choose an account that does not appear on your report.

Then work really hard to make sure you can always pay everything on time in the future. Your credit score will thank you, and so will your stress levels.

13. Be patient for your score to improve

Credit rebuilding takes time. And it’s measured in months and years, not days and weeks. After all, negative information remains on your credit report for seven to 10 years. And you can’t fully recover until it’s gone.

Sure, you can escape the depths of bad credit well before then by offsetting the negative records on your credit reports with an avalanche of positive information. But you won’t be completely out of the woods as long as your record has red flags.


How Long Does It Take to Rebuild Credit?


The short answer is that it usually takes at least a year to recover from bad credit, assuming you do everything right. But it all depends on your starting point, the length of your credit history and the moves you make going forward.

Rebuilding means different things to different people, depending on their:

  • Expectations: If you previously had excellent credit, it will take longer to get back there than it will to return to fair credit. So where you see your credit when fully rebuilt obviously affects how long the process will take.

  • Credit History: Even relatively minor mistakes can push someone with limited credit into the “bad credit” category. But it would be just as easy to reverse course in that case. On the other hand, the kinds of serious mistakes that require rebuilding a long and responsible credit record take far longer to recover from.

  • Next Steps: The credit-rebuilding process will be slow if you continue to make mistakes. So follow the instructions from above, and avoid falling back into old habits.