building and repairing your credit history

Posted : February 27, 2018
Last Updated : January 13, 2020

building and repairing your credit history

If you don't have a credit history, lenders may be reluctant to extend credit to you because they know nothing about you. If you have a poor credit history, lender may be reluctant to extend credit to you because they are nervous about the chances that you will repay as agreed. Learn how to build and/or repair your credit the smart way.

Tips on How to Build Your Credit History

Note: Creditors view your credit report to look for how many inquiries you have, how much credit you’re using, timely payments, delinquent accounts, and how many accounts you have open.
  • Apply for a small loan at the bank, thrift, or credit union where you have checking and savings accounts.
  • Apply for credit with a local store. They typically have a lower credit limit and a higher annual percentage rate (APR), but they’re generally more willing to lend you money.
  • Make a large down payment on a purchase and negotiate credit payments for the balance. If you don’t have a credit history but have a large down payment, there is less risk you’ll not make the payments. For example, if you’re buying a used car for $5,000 and have enough cash, you might consider making a down payment of $1,000 to $3,000. Although the loan will be very small, it can prove you make your payments on time.
  • Ask a friend or relative with an established credit history to be a cosigner for you. A cosigner promises to repay the loan if you don’t. The lender should report the payment information for both you and the cosigner to the credit reporting agencies. Remember that you can damage the cosigner’s credit history if you don’t pay the loan back as promised.
  • Pay your bills on time. This will help establish a good credit history so you can get credit in the future.
  • Ask the lender to review your history of making rent and utility payments to demonstrate your ability to pay.
  • Keep your debt levels low. The more debt you have in relation to your income or your available credit lines, the more you’ll be viewed by lenders as a higher risk borrower. For example, all of your monthly obligations (rent/mortgage, car payments, school loans, credit card payments, etc.) should be less than or equal to 33 to 36 percent of your monthly gross income.
  • Make regular deposits into a savings account. This is another way to show the lender that you can make payments every month, even if you’re making the payments to yourself.

Tips on How to Repair Your Credit

There are two ways to repair your credit history: do it yourself, or use a credit counseling agency.

Repairing your own credit:
  • Begin by contacting credit reporting agencies to obtain a copy of your credit report.
  • Report errors on your credit report to the credit reporting agency in writing. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should clearly identify each item in your report you dispute, state the facts, and explain why you dispute the information and request that it be removed or corrected. Keep copies of your dispute letter and enclosures. Also, tell the creditor or other information provider, in writing, that you dispute an item.
  • Contact your lenders to renegotiate payment plans.
  • Opt out of receiving unsolicited offers for credit cards to avoid the temptation if you have trouble managing credit cards.

Repairing credit using a reputable credit counseling agencies:
Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. If you decide to use a credit counseling agency, the FTC offers these tips for choosing a credit counseling agency and questions to ask regarding services and fees.
  • Interview several credit counseling agencies before signing a contract.
  • Check with your state attorney general, local consumer protection agency, and the Better Business Bureau to find out if consumers have filed complaints about the agency you’re considering. A reputable agency will send you free information about itself and the service it provides without requiring you to provide any details about your situation. If the agency won’t do this, find another agency.
  • Ask questions about services, fees, and a repayment plan.

Questions to ask credit counseling agencies:
Services and fees:
  • What services do you offer?
  • Do you have educational materials? If so, will you send them to me? Are they free? Can I access them on the Internet?
  • In addition to helping me solve my immediate problem, will you help me develop a plan for avoiding problems in the future?
  • What are your fees? Do I have to pay anything before you can help me? Are there monthly fees? What’s the basis for the fees?
  • What’s the source of your funding?
  • Will I have a formal written agreement or contract with you?
  • How soon can you take my case?
  • Who regulates, oversees, or licenses your agency? Is your agency audited? Are you licensed to offer your services in my state?
  • Will I work with one counselor or several?
  • What are the qualifications of your counselors? Are they accredited or certified? If not, how are they trained?
  • What assurance do I have that information about me (including my address and phone number) will be kept confidential?
  • Will the fact that I’m working with you appear on my credit report?

Repayment plans:
  • If I enroll in a repayment plan, will it appear on my credit report?
  • How much debt must I have to use your services?
  • How do you determine the amount of my payment? What happens if this is more than I can afford?
  • How does your debt repayment plan work? How will I know my creditors have received payments? Is client money put into a separate account from operating funds?
  • How often can I get status reports on my accounts? Can I get access to my accounts online or by phone?
  • Can you get my creditors to lower or eliminate interest and finance charges or waive late fees?
  • Is a debt repayment plan my only option?
  • What if I can’t maintain the agreed-upon plan?
  • What debts will be excluded from the debt repayment plan?
  • Will you help me plan for payment of these debts?
  • Who will help me if I have problems with my accounts or creditors?
  • How secure is the information I provide to you?

For additional information on choosing a credit counselor, visit:

Credit Repair Scams

Only consistent efforts and making payments on your debts will improve your credit. Therefore, it’s important to choose your credit counseling agency carefully.

Some businesses make promises about repairing your credit that they can’t deliver.

Beware of companies that:
  • Promise to erase your bad credit or to remove bankruptcies and judgments from your credit file. No one can have accurate information removed.
  • Promise fast and easy credit repair. If you’ve bad credit, it can take years to repair your credit legitimately.
  • Offer to create a new identity for you. If you make false statements on loan applications or use a fake SSN, you’ll be committing fraud. You can also be charged with mail or wire fraud if you use the mail or telephone to apply for credit and provide false information.
  • Want you to pay for credit repair services before providing any service. Legitimate companies provide a service before requesting payment.
  • Won’t tell you your rights and what you can do yourself. Remember, you can order your credit report yourself. If you see errors on your report, you can also request that the credit reporting agencies make appropriate changes.

Many states have laws that regulate credit repair companies. Before signing a contract, check with your local Better Business Bureau, state attorney general’s office, or local consumer protection agency to see whether complaints have been filed against the company.

Tips for Maintaining Your Credit when Payments are a Problem

  • Consider steps that can enable you to make your payments. Look for ways to cut expenses. If possible, pay your bills using funds in your checking or savings accounts, and avoid withdrawing or borrowing money from your retirement savings.
  • Stay current on loans, credit cards, and other bill payments. This will help minimize damage to your credit score. This is important if your financial difficulties are due to a job loss, because as you apply for new jobs, employers may review your credit report.
  • Contact your lenders immediately if you anticipate payment problems. If you expect you’ll be unable to pay your bills – whether they be utilities or your mortgage payment or credit card – call quickly to work out a plan. If you wait until you’re unable to make the payments, you can damage your credit rating and have fewer options available for getting help.
  • Be proactive if your payment problems have already started. If you’re unable to make your loan payments, seek help quickly by discussing your options with your lender or mortgage loan servicer (the company that collects payments and performs other work for the lender, including negotiating new payment plans with borrowers who are late or delinquent on their loan payments).

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