debt

6 steps to rebuilding your credit score

If you've lost your job, defaulted on a mortgage or gotten behind on your debt, your credit score is at risk of taking a hit. But it is possible to maintain, and even rebuild, your credit score during tough financial times. Here's how:

  • Get a copy of your credit report. It is an essential tool for reviewing what existing debts you need to pay off to improve your credit score. You can receive a free credit report annually from each of the three credit bureaus -- Equifax, Experian and TransUnion -- at AnnualCreditReport.com.
  • Pay major bills first. "Pay secured payments like the car loan or mortgage payment first, then the credit cards," says Gail Cunningham, vice president for the Silver Spring, Md.-based National Foundation for Credit Counseling. "With the credit cards, start with those with debt that exceeds 30 percent of the total credit limit."
  • Pay on time. Pay your bills when due, even if it's just the minimum payment. "The highest-weighting part of your credit score is how faithfully you pay your debt, so avoid making late payments," says Cunningham.
  • Rein in spending. Don't use credit cards or take on new loans while trying to improve your credit score. And use extra money like cash gifts or a tax refund to pay down debt.
  • Don't anger creditors. Quibbling with businesses you owe money to may lead them to place black marks on your credit report, says John Ulzheimer, president of consumer education for Credit.com. "If you cancel your cell phone service before your contract is up, don't argue with them about the penalty charge. Just accept it and pay the fee."
  • Remember that time is your friend. Your credit score won't shoot through the roof right away but a record of steady, on-time payments will improve it within 12 to 24 months. "You can't control how long a bad judgment like a late payment or a collection will stay on your credit report, but what makes your score higher is paying on time and using credit responsibly," says Ulzheimer. "And because credit scores are updated approximately every 30 days, yours will immediately reflect a lower credit balance every time you make a payment."

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