How to rebuild your credit score

Fortunately, there are steps you can take to start rebuilding your credit:

When you look at a map, you need to know where you are and where you’re going.

Start by getting a very clear picture of your current situation. Get a free credit report online, take a look at every bill you have, and account for all of your credit cards, car loans, lines of credit, student loans, tax bills, mortgages – all of it.

Some free credit report checkers included Credit Karma and Borrowell. They are free to use and will give you an up-to-date credit score, as well as an overview of your payment history and the products you qualify for.

2. Spot and Correct Errors

Credit bureaus, for all their power, don’t always get it right. There could be mistakes on your credit report that are dragging down your score. Review your report carefully and have any errors corrected right away.

3. Take Care of Any Big Problems

This is easier said than done, but nothing is going to fix your credit as long as there are any major issues to be taken care of.

If you owe back taxes, have debt in collections, or have any other big stains on your credit report, make them your first priority.

If you’re so deep in debt that you can’t keep up, you have options. Consider negotiating directly with your creditors or applying for a debt consolidation loan.

In Canada, a licensed insolvency trustee can help, often at no cost to you. In the US, you can hire a bankruptcy attorney and there are many pro-bono and legal aid organizations you can use as a resource.

4. Get Up-to-Date on Minimum Payments

You don’t have to pay your balance in full to have a positive impact on your credit score. All you have to do is make the minimum payment, on every account, every month, without fail. Even one missed payment can set you back so make a plan to never miss a payment again.

5. Pay Down Your Balances

This, too, is easier said than done. But the closer you are to your credit limit, the worse your credit score will be.

You don’t have to pay all your credit cards down to zero, but try to stay well under the limit if at all possible.

Experts say using no more than 30% of your credit limit is ideal, but any headroom you can leave yourself will improve your credit score.

If you can make your minimum payment on every loan consistently, without missing a month, and bring your credit card balances down from the limit, your credit score should improve steadily.

There are many, many factors the credit bureaus use to determine your credit score.

In fact, you have multiple different credit scores, each calculated on a slightly different set of criteria.

The whole business is a bit opaque, to say the least, but most of what helps and hurts your credit score come down to common sense.

Your credit score goes up when you show that you’re responsible for the money you borrow.

The biggest boon to your credit score comes when you make the minimum payment on all of your bills, on time, every month.

Other things that help your credit score include the length of your credit history (longer is better), how much money you’ve borrowed relative to your credit limit, and the number of different lenders who report that you’ve paid on time.

Your credit score goes down when you don’t meet your obligations or send signals that you could be in financial trouble.

Your credit score is hurt when you miss bill payments and borrow close to your credit limit. Your credit score also takes a hit when you apply for more credit, and can absolutely tank if you default on a loan, have an outstanding debt to the government, declare bankruptcy, or have an account sent to collections.

A few things, funny enough, don’t have any impact on your credit. Many billing companies don’t report to the credit bureaus. Many landlords don’t either, but some do. Your mileage may vary. Other factors like your income, while important to your overall loan worthiness, don’t make a difference to your credit score.

The key to a good credit score is consistency. Every time you miss a payment, your credit score takes a hit. The longer it’s been since your last missed payment, the better your credit score will be. Remember, you don’t have to pay off the full balance each month. Your credit score will stay healthy as long as you make the minimum payment.

While making your payments on time is the single best thing you can do to improve your credit, there are a few other things you can do to bring up your credit score.

1. Don’t Close Unused Credit Card Accounts

Remember how your credit score improves when you don’t use your full credit limit? Leaving old credit cards open and not using them helps keep your credit utilization rate down. Plus, the length of your credit history is a factor, so these accounts will aid your overall credit.

2. Don’t Apply for Too Much Credit at Once

Each time you apply for a credit card or loan, your credit score takes a small hit. Making multiple applications at the same time sends a signal that you’re desperate to get your hands on money, and sends your credit score lower, faster. Try to keep each application three months apart, if possible.

3. Take Care of Your Bank Accounts

Occasionally, your credit score can be hurt if your bank closes your account for a negative reason, like if you’ve bounced too many checks.

4. Rebuild Your Credit (and Keep It That Way)

Your credit score is the key to your financial future. The better it is, the more able you’ll be to borrow money to buy the home, car, or PS5 you want.

By taking stock of your financial situation and making a plan to pay the minimum balance on every bill, every month, you’ll get your credit back on track and keep it there.