The credit history rebuilding process is not difficult, but it takes time. Your goal is to add positive information to your credit history by obtaining a small amount of new credit from a reputable creditor, paying it off according to the terms of your credit agreement, securing additional credit and paying it off on time, and continuing the pattern.
While you are applying for small amounts of credit and paying it off on time, the negative information in your credit history starts to go away. Federal law says that most credit information can stay on your credit report for only seven years and six months.
A bankruptcy can remain in your credit history for ten years. If you’ve defaulted on your student loan or your child support obligation, you can expect that information to stick around until you’ve cleared up the debts. Federal tax liens are reported until you pay what you owe and get the liens released.
As long as you manage your finances responsibly while you’re rebuilding your credit, the amount of positive information in your credit history will gradually increase. Eventually, creditors will pay more attention to the positive information you’re adding than to any bad information that still remains in your credit history.
Use a credit card to begin the rebuilding process: If you have too much negative information in your credit history, you may not qualify for a regular MasterCard or Visa right away. Instead, you may have to apply for a secured card.
Credit card companies are entitled to change the terms of your credit card whenever they want, as long as they tell you about the change at least 15 days prior to its effective date. They may make a change because a lot of negative information has been added to your credit history since they gave you credit or because your credit score has dropped. Sometimes a creditor makes a change in credit terms that applies to all its cardholders.
You can use your MasterCard or Visa card in one of two ways to rebuild your credit:
Use your card to make small purchases each month and pay the card balance in full and on time.
Use your card to buy something essential and relatively expensive, and pay off the card balance over time. Always try to pay more than the minimum due each month, and avoid charging anything else on the card until you’ve paid off each balance.
Get a loan: Set up an appointment with a loan officer at a bank in your area to discuss your borrowing needs. Explain what you have done to improve your finances. Let him know that you have begun the credit rebuilding process and, as part of the process, you would like a small bank loan.
