Improve or rebuild credit

Your credit score can tell a little about your credit situation, but to understand what is behind your score, you need to see what is on your credit report.

• Order your reports. You can get a free copy of your credit report every 12 months from each of the 3 major credit reporting companies (Equifax, TransUnion, and Experian) at annualcreditreport.com.
• Review your credit report for accuracy. Look at the status of each of your accounts and identify the opportunities you have to rebuild or improve it.
• Dispute any errors. If you find information that you believe does not belong to you or is inaccurate, contact the business that issued the account or the credit reporting company that issued the report.

To prevent your credit situation from getting any worse, start by creating a budget that allows you to:

• Bring any delinquent accounts current. Talking to your creditors can help you to determine exactly what you need to do to catch up.
• Pay every account on time. Make at least the minimum payment, but also try to reduce the overall amount you owe by paying a bit extra — starting with higher-interest accounts.
• Work on paying your balances down. If your accounts are maxed out, work on paying them down. It may take some time, but ideally you want to use no more than 30% of each of your available credit lines. That means your balance should never go above $300 on a credit card with a limit of $1,000.
• Practice self-discipline. Charge only what you can afford and keep your balances low. When you make a credit card purchase try using Online Bill Pay to transfer the payment amount to your credit card right away.
• Avoid taking on any new debt. Try to minimize the amount of credit you use.

If you have no available credit, and your finances are stable, you should start working towards reestablishing your credit. Even though you may have fewer credit options now, it’s important to find ways to show positive credit activity.

• Consider becoming an authorized user on the account of someone you know and trust. This could help you start building positive credit without an account of your own. Wells Fargo reports this to the credit bureaus, but not all lenders do, so check with the card issuer.
• Consider applying for a secured loan or secured credit card, which may be good alternatives to unsecured credit as you rebuild. Secured cards work like any other credit card but require some form of a collateral account.
• Apply for a store or gas card, which may be easier to qualify for. If you can’t qualify on your own, consider asking a friend or family member with strong credit if they would be willing to cosign. Be sure to use the card responsibly, maxing it out can do more harm than good.
• Avoid pre-paid cards as a way to reestablish credit. Pre-paid cards don’t help you build a credit history. They simply let you make credit card-like transactions, like paying at the grocery check outs or at the gas station. They can be helpful if you don’t have a checking account or debit card, but they don’t report to the credit bureaus and can’t help build your credit history.

Improving your score takes perseverance, but it can pay off. A higher score (especially above 760) can give you more options — and better rates — if you ever need a car loan, mortgage, or home equity line of credit.

Here are some key points to consider that may help to improve your credit score:

• Keep track of your progress. As you make changes, it will take time for your score to adjust. Scores update on a monthly basis so be sure to track them regularly.
• Always pay bills on time. It may seem obvious, but a history of consistent on-time payments is one of the biggest factors in building a good score. This means making at least your minimum payment each month, on or before your due date.
• Keep balances low. How much credit you have available is another important scoring factor, so keep balances as far below your credit limit as possible. Keeping your balances below 30% of your total available credit may improve your credit score.
• Keep unused accounts open. Open accounts with no balances mean you have more available credit, so it can help your score to keep them open even if you don’t plan to use them. Or plan on using them sparingly to keep them active. 
• Be careful about opening new accounts. If you need a new credit account and can comfortably manage the additional payments, great. But avoid anything that might strain your budget.
• Diversify your debt. 10% of your credit score is determined by your “credit mix”. Creditors like to see a pattern of handling credit responsibly over time on a variety of account types, including both revolving credit and installment loans.