Rebuilding your credit can be an exceedingly slow and painstaking process, but there are some strategies that you can use which may give your score a kick in as little as a month or two. Read on:
First, pay off your credit cards and lines of credit. One of the fastest ways to boost your credit score is to lower your debt utilization ratio. which is the difference between the amount of revolving credit that's available to you and the amount that you're actually using. However, the best method to pay off revolving debt isn't with another loan (which would likely also show up on your credit report and even more damage), but by paying down the debt from your current income, using cash that you have in a savings account, or selling stocks or other investments, as long as they aren't in a retirement account.
Also, use your credit cards sparingly. The scoring formula rewards large gaps between your balances and your limits, and it doesn't really matter whether you pay off those balances in full every month or not. What does matter is how much of your credit limits you're actually using at any given time. A good rule of thumb, especially when attempting to push your score up, is to stay below 30% of your limits. Another "trick" that you can use to keep your balances down is simply to pay cash for most of the purchases that you make during the three months or so before you plan to take out a loan.
Focus on correcting the big mistakes on our credit report. If
someone else's bankruptcy, collections, or charge-offs are showing up on your report, you'll likely benefit quickly by having those removed. However, if an account that you closed is still being reported as open, it's probably best to leave it that way. Having an account reported as "closed" on your file can in no way help your credit score and could actually hurt it.
But don't ignore a collection just because it's a small amount or listed as paid off. Such negative marks are actually quite serious and can significantly hinder your score. However, there's no need to jump up and down in a screaming fit of indignation if the credit reporting agencies listed the wrong employer for you or misspelled your middle name. Unfortunately, the scoring formula doesn't even consider those things.
Use the credit bureaus' online dispute process. Many people swear that they get much faster results by using the online system, but it's still mandatory -- for your own records -- to make printouts of everything that you send to the bureaus as well as every communication you receive from them.
Finally, try to get creditors to report or update your positive accounts. Not all creditors report to all three bureaus, some don't report consistently, and others don't report at all. If you can get a creditor to report an account that's in good standing (they have no legal obligation to do so), you could see an immediate jump in your score.
In Part 2 of this series, we'll divulge a few things that probably shouldn't try in order to give your score a lift.