The Control Your Money: Own Your Life (™) Blog

March 14, 2024

4 Ways to Rebuild Your Credit and Raise Your Credit Score

Having a strong credit profile and credit score can substantially improve your financial life and open doors to opportunities.

Why Credit Profiles and Scores Matter

Your credit is often used to judge your character and whether you are fiscally responsible.

Many different people look at your credit. Prospective employers may scrutinize your credit report to evaluate your suitability for roles involving financial responsibilities. A poor credit history could potentially hinder promotion opportunities, as some employers may question your ability to manage finances or even express concerns you may mishandle funds because of personal money pressures. There is also lots of data that shows that financial stress impacts worker productivity.

Landlords pull your credit report to determine whether to lease an apartment or home to you. They can reject you based on the business risk you pose because you are not creditworthy.

Lenders will offer better terms such as no annual fees, and lower interest rates to those who have good credit. According to FICO, among those who have an exceptional credit score of 800+, only 1% are likely to become delinquent, whereas 61% of those who have a poor credit score of 579 or lower become delinquent. Interest rate differences of a few percentage points can have a huge impact on your monthly payments and interest paid over the term of a loan in your lifetime.

How to Rebuild Your Credit and Increase Your Credit Score

1. Obtain a free copy of your credit report from the 3 credit reporting agencies, Equifax, Experian, and Transunion by using the website: annualcreditreport.com. This is the website recommended by the US Federal Trade Commission and the Consumer Financial Protection Bureau.

2. Once you receive your credit reports, review all 3 and take the following actions. Making these changes should result in an increase in your credit score. 

• Make sure that all 3 reports have the same information, especially positive information such as accounts with long credit histories and on-time payments. Not all creditors report to all 3 agencies, and we don’t know which agency a prospective creditor may pull from. Contact the agencies that may be missing the information and ask them to include it.

• Correct errors by immediately reporting them to the credit reporting agencies and/or the creditor. The agencies have a duty to investigate. Send them copies of documentation which supports your position if available. Submit a statement explaining the disputed amount if the item is not removed. Have the agencies remove items that have expired or should not have been reported:

  • 1. 1. Late payments that are more than 7 years from the date of the missed payment.

       2. Chapter 7 Bankruptcies that were filed more than 10 years ago.

       3. Chapter 13 Bankruptcies that were filed more than 7 years ago.

       4. Medical debt amounting to $500 or less, and not exceeding one year in age or has been paid.

3. For your free credit score, check whether your bank or credit card offers a free credit score, or you may have to purchase it from a credit score company, such as FICO (Fair Isaacs Company). Some suggest obtaining the free credit score through a non-profit organization such as a housing counseling service. Obtaining your credit score will not impact your credit score since this is for informational purposes, and not because you are seeking credit or financing.

To improve your credit score quickly, lower how much of the credit available you are using on your credit cards or other revolving credit. This is known as the utilization ratio, and accounts for 30% of your credit score (or 255 points out of a possible 850 points). Act to bring the ratio down to 30% or lower. For example, if you have a credit limit of $1,000, and a balance of $500, your utilization ratio is 50% of the credit available. You can make payments to bring the balance down to $300, for a ratio of 30%. It may also be possible if you have a good payment history with the creditor, to ask for an increase of your credit limit to $1,500, or $2,000 so that the $500 balance now represents just over a 30% or 25% utilization ratio.

4. To rebuild credit, or begin to establish credit for the first time, you can use the following strategies:

• Obtain a secured credit card, which requires you to make a deposit into an interest-bearing account which is collateral for the credit extended on the card. The credit limit initially will be small. Use the card and faithfully make your payments on time. Forcing the creditor to take your deposit for unpaid debt will further exacerbate your credit damage.

• Obtain a credit-builder loan (offered by some credit unions, CDFIs, community banks), which allows you to borrow money that is deposited into an interest-bearing account. When the loan is paid off, you have an account with the original amount borrowed and interest earned.

• Obtain a credit builder credit card which may not require a deposit account.

• Obtain an authorized user card from someone who has good credit. Your credit will be built based on the credit of the primary cardholder who is solely responsible for the debt. The primary cardholder bears the risk if you  irresponsibly use the card.

• Obtain a guarantor on a debt and pay it back faithfully. Non-payment puts the guarantor at risk to pay the debt if you don’t and will damage the guarantor’s credit as well as yours. 

• Bring your past due debts current, and start paying your bills on-time. The further you get away from the period of late payments, the more your credit profile and scores will improve.

These are just some of the ways that you can take control of your credit. Improving your credit profile and score will bring down the cost of credit, saving you money, and may open doors to new opportunities. You can do it!