What can I do to rebuild my credit?

After you've cleaned up your credit report, the key to rebuilding credit is to get positive information into your record. Here are two suggestions:

• If your credit report is missing accounts you pay on time, send the credit bureaus a recent account statement and copies of canceled checks showing your payment history. Ask that these be added to your report. The credit bureau doesn't have to add this information, but often will.
  
  
• Creditors like to see evidence of stability, so if any of the following information is not in your report, send it to the bureaus and ask that it be added: your current employment, your previous employment (especially if you've been at your current job fewer than two years), your current residence, your telephone number (especially if it's unlisted), your date of birth, and your checking account number. Again, the credit bureau doesn't have to add these, but often will.

I've been told that I need to use credit to rebuild my credit. Is this true?

Yes. The one type of positive information creditors like to see in credit reports is credit payment history. If you have a credit card, use it every month. Make small purchases and pay them off to avoid interest charges. If you don't have a credit card, apply for one. If your application is rejected, try to find a cosigner or apply for a secured card -- where you deposit some money into a savings account and then get a credit card with a line of credit close to the amount you deposited.

But a word of caution: It won't do you any good in the long run to apply for credit before you're back on your feet financially. You'll just end up with high cost credit that will put you back in the hole again. Even if you can get a card earlier, wait until you are ready to start using credit again.

How long does it take to rebuild credit?

If you follow the steps outlined above, it will usually take about two years to rebuild your credit so that you won't be turned down for a major credit card or loan. After around four years, you should be able to qualify for a mortgage.

Copyright 2006 Nolo

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