5 Simple Steps to Rebuilding Your Credit


credit-reportWhen it comes to buying a new home, one of the most important first steps you can take is to make sure your credit rating is in good standing. After all, the better your credit rating, the more likely you are to be approved for a mortgage loan and the more likely you are to receive an attractive interest rate. While building good credit is not something that can be done quickly, it is something that can be done relatively easy if you take these 5 simple steps.

Step #1: Get a Credit Card

If you do not already have a credit card, getting one can go a long way toward helping you build good credit. Of course, you need to be responsible with your credit card. Otherwise, you will wind up in a great deal of debt and you will do more damage to your credit than good. To use a credit card to help build credit, use it each month and pay off the balance in full at the end of each billing period. By doing so, you will build credit without being hit by any interest costs.

Step #2: Have Bills Automatically Billed to Your Credit Card

A crucial part of building good credit is making sure you are paying your bills on time. One way to do this is to mark your paydays on a calendar months in advance. Then, write down which bills you will pay with each paycheck. When your paycheck arrives, pay those bills even if they have not come due.

Another way to ensure your bills are paid on time is to use the credit card that you have obtained. More than likely, you can set it up so most of your bills are automatically billed to your credit card. If you have a rewards credit card, you pay even get bonus points or money for having your bills automatically billed to the card. With autopayment, you are guaranteed all of your bills are paid on time. Then, you only need to worry about paying your credit card on time each month. Even better, if you do have a rewards card, you can earn cash while you build credit!

Step #3: Check Your Credit Report

You can obtain a free copy of your credit report by visiting AnnualCreditReport.com. According to current government regulations, you are allowed to obtain a free copy of your credit report from all three of the credit reporting agencies by visiting this site. Once the credit reports arrive, look over all of them to make sure they are correct. Although most of the information is likely to be the same, you may find some information on one credit report that is not on the others. This is because some financial institutions only supply information to one or two of the credit reporting agencies.

Step #4: Correct Errors on Your Credit Report

If you discover errors on your credit report, be sure to contact the credit reporting agency in writing regarding the errors. You should also include copies of any documents that you have to prove that the provided information is incorrect. The credit reporting agencies will then have 30 days to review your claim and make any corrections that need to be made. You will then receive a copy of your revised credit report. Be sure to review this report to ensure it is correct.

Step #5: Pay Down Your Bills

If you already have a credit card or any other form of revolving credit, you should also work on paying down the balance. The closer you are to maxing out your credit cards, the more negatively your credit score is impacted. Try to get all of your balances so they are no more than half of the credit limit that you have available. It may seem strange, but it is better to have $10,000 worth of debt spread out over three credit cards than it is to have a $10,000 balance on a credit card with a $10,500 limit.

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