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Dorothy Rosen -- The Dollar Diva Ask the Dollar Diva

8 steps to rebuild bad credit

Dear Dollar Diva,
I need an action plan for rebuilding bad credit. Can you help?

Dear John,
Improving your credit does require an action plan. Follow the Diva's 8-step plan for rebuilding bad credit and watch yours get better with each passing year.

When it comes to credit, current good behavior counts more than past mistakes, but you don't get your halo until all of the negative data is off your credit report. That takes seven years; 10 years if you've gone through the agony of bankruptcy.

Here is the 8-step plan of action that's going to help you earn that halo:

1. Stop job-hopping: Stay at least two years on the same job; steady employment sends a message that you're stable;

2. Go to night school: Education is the ticket to higher earnings; high income is a credit asset.

3. Spend less than you earn: For some tips on spending less, read the Diva's "Paying down your credit cards: a 10-step plan."

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4. Open an emergency savings account: When you make systematic deposits to a savings account, it sends a positive message to lenders. Better yet, with money in the bank, you won't have to rely on plastic for unexpected bills. But remember, this is an emergency account: Don't tap it for nonessentials, such as that family trip to Disneyland.

5. Pay your bills early: A history of early payments gives you credibility when a payment is late and it's not your fault.

Credit reporting agencies
Trans Union Corp.
760 W. Sproul Rd.
Springfield, PA 19064-0390
(800) 888-4213

6. Stop borrowing: Debt is the problem, not the solution. Don't take on any new debt and keep your cotton-pickin' paws off your home equity. A reader laments over his decision to use home equity to pay off credit card debt in the Diva's "Second mortgage turns into debt nightmare."

7. Close credit card accounts as soon as they're paid off: You can't be tempted to use them if you don't have them. Read the Diva's "Closing your credit accounts" to learn how to close them in a way that will not harm your credit report.

8. Get copies of your credit reports from the three major reporting agencies: Check for mistakes, including old negative data that shouldn't be there because it's more than seven years old or more than 10 years old if it's a bankruptcy. To learn how to fix the errors, read the Diva's "How do I fix my credit report?"

-- Posted: Oct. 15, 2001

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