Credit Basics

Step #2: Let time heal the wounds.

As negative information becomes older, it becomes less important on your credit file. It still will have an impact on your credit worthiness but that impact becomes less over time - but only if you now pay your bills on time!

Sometimes, waiting for the negative information to get older is the best strategy, especially if everything on your credit report is accurate. Of course, you'll also want to continue to build positive new credit references.

Step #3: Ask your creditors for help.

Sometimes negative information is accurate but due to unusual circumstances. For example, you may have been in a car accident and unable to work or keep up with the large medical bills. Or you may have had a business that failed due to a significant change in the marketplace. Generally, divorce in and of itself is not considered an extenuating circumstance.

If you had a good payment history but then fell behind due to extenuating circumstances, and if you are now back on your feet and paying your bills on time, you may want to ask your creditors to "re-age" your accounts - or essentially delete those previous late payments.There are banking guidelines that lenders must follow when re-aging accounts, but it can be done under certain circumstances, so it may be worth asking your lender for help.

Step #4: Build positive new credit references.

The best thing you can do to rebuild your credit is use credit carefully and always pay your bills on time. Consumers who are proactive about rebuilding their credit after problems have occurred can see significant improvement in as little as a year or two! Here are some tips:

• Lenders will want to see at least a couple of recent credit accounts paid on time. If you still have open accounts, use them periodically for things you would buy anyway, then make sure to pay the bill well before the due date.
• Carrying balances and paying interest is not necessary for rebuilding good credit.
• If you don't currently have any credit cards, it may be a good idea to get one. But avoid "guaranteed approval credit cards" that cost a couple of hundred dollars in fees. A better bet is a legitimate "secured card" where you place a security deposit with the lender in exchange for a major credit card with a modest credit limit. Shop for one at www.bankrate.com.
• Never pay a bill late if it might appear on your credit report.