If you’re like millions of Americans whose finances have taken a turn for the worse during the current recession, you may have fallen behind on your bills or you may even have had to declare bankruptcy.  This can have a devastating effect on your credit score for years to come, and it can impact your ability to buy a house, a car, or even find a job.  But in this bleak picture, there is good news.  There are several steps you can take to rebuild your credit history and improve your credit score—and it may not be as difficult as you think.  Here is what to do:

• Order a copy of your credit report from all three credit bureaus.  Before you can fix your credit, you have to know what derogatory information is on your credit report.  By law, you are entitled to a free copy of your credit report once a year from all three major credit bureaus - Equifax, TransUnion, and Experian.  You can order them at http://www.annualcreditreport.com.  There is no charge to order your reports, unlike other sites which usually require you to enroll in a credit monitoring program for a monthly fee.  Once you have all three credit reports, you can check them for any errors and report any inaccuracies to the credit bureau.  The credit bureau will investigate your claim, and any information not verified by the creditor will be removed from your credit report, thus bringing up your score.

• Pay your bills and pay them on time. Although this may seem obvious, late payments can have a huge negative impact on your credit score.  If you are having problems making your payments, call your creditors and negotiate with them.  They may be willing to negotiate an alternative payment plan with you.  A delinquent account that goes into collections has a huge impact on your credit score and should be avoided if at all possible.  Even being a month late on your mortgage or credit card payment will negatively impact your credit score. 

• In order to rebuild your credit, you have to use credit.  If overextending your credit got you into trouble in the first place, you may be tempted to pay for as much as possible with cash.  Unfortunately, this is not the way to quickly improve your credit score.  Start with a secured credit card if you don’t qualify for an unsecured one.  Once you’ve demonstrated that you can pay on time each month, you should be able to qualify for an unsecured credit card within 12 -18 months.  However, be careful not to use more than about 30% of your available credit, or else your credit score can be negatively impacted.  Ideally, you should have two types of credit to boost your score: installment (such as an auto loan or a mortgage) and revolving (credit cards or a home equity line or credit).

• Don’t close out old accounts because you no longer use them. You may be tempted to close out old accounts that you no longer use.  This can be a mistake because the length of time you’ve had an account open is factored into your credit score.  But if you don’t use old accounts, the issuers may stop updating them to the credit bureaus.  Consider making a small purchase every few months instead.
Once you’re in a position to start rebuilding your credit, it’s important to learn from your previous mistakes so that you don’t make them again.  Re-evaluate your spending habits and make changes as necessary.  The road to financial solvency may be difficult, but it is well worth the effort in the long run.

By Paige Lee, Service Coordinator, Jewish Community Services, Baltimore, MD

To learn more about how JCS can help you solve life’s puzzles, visit http://www.jcsbaltimore.org or call 410-466-9200.  Jewish Community Services is an agency of THE ASSOCIATED: Jewish Community Federation of Baltimore.

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