Your credit score is important. If you've already established solid credit or you’re just starting out and haven’t made any mistakes yet, that’s good to know. But what if you didn't manage your credit carefully in the early days or your credit score took a hit due to job loss, divorce, or some other unforeseen circumstance? Don’t despair. Your credit score can be rehabilitated. However, it’s not going to happen overnight. The sooner you get started, the better.
Keep current accounts current
Perhaps it should go without saying, but the first step is not to make things worse. Make your current monthly payments on time for those accounts that are current, and work on bringing any past due accounts up to date as quickly as possible. Remember that it may take a few months for the status of those past due accounts to be updated, so don’t wait until you’re ready to make a major purchase or apply for a new apartment to make them current.
Pay off or settle any accounts in collection
Collection accounts have a negative impact on your credit. Though they’ll remain on your credit report for seven years, older collection accounts that have been paid are treated differently than current collection accounts. Paying off an account in full is better for your credit than a settlement. But any resolution will help and start the clock ticking on that account dropping off your credit report.
Establish a positive payment history
If you have open credit accounts, you can establish a positive payment history by making timely payments. However, if you’re not currently using credit, paying off past debts will only take you so far. You need to show the rating agencies, as well as your future landlords or creditors, that you can handle debt responsibly. If your old accounts have been charged off or closed, you’ll have to start fresh. Consider a secured credit card or a small secured loan from your bank to begin rebuilding. Be cautious, though—many secured and high-risk credit card offers come with outrageous fees and costs. Do your homework and choose carefully, or you may just invite a new round of troubles.
The path to a better credit score is well-marked and simple (if not always easy) to follow: Pay off old debts, keep current accounts up to date, and don’t borrow more than you can afford to pay back.
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