MSU Extension

The very first step to improve your credit score is to review your credit report. If you have not reviewed your credit reports in over a year, now is the time to pull those reports. You can receive a free copy of your credit reports by going online. Any mistakes, items you do not recognize, or credit lines that indicate the last activity to be dates more then seven years and six months ago should be disputed with the credit reporting agency that is listed it. All three reports have a link to make your disputes.

To continue to improve your credit report and score, follow these actions on a daily basis:

1. Keep credit cards manageable and under control
2. Know when to apply for and take on new credit
3. Automate your bill payments
4. Stay on track by keeping your goals in mind
5. Be patient. And reach out for help, when necessary.

Keep credit cards manageable and under control. If you pay off or lower your existing credit card balances, you may be able to add points to your FICO credit score. The industry standard suggests that using only 30 percent of your available credit amount will help build your credit and increase your credit score faster. In addition, the less you owe, the more likely it is that you will be able to pay all of your bills each month is is ideal. 

Know when to apply for and take on new credit. Do not attempt to raise your credit score by closing open credit lines. This might actually hurt your score more after a short sale or foreclosure when access to new credit will be limited. When you close credit lines, potential lenders might think you have over-extended your credit and may not be able to afford additional loans in the future. However, if you are left with no credit lines after a foreclosure or short sale and cannot qualify for unsecured lines of credit, you can apply for a secured credit card or a personal loan. Secured cards and loans require you to deposit funds with a financial institution in exchange for credit. For example, if you deposit $500, that will be the amount of your secured credit line. Using secured cards and loans responsibly will help to increase your credit score. Over time, the lender may raise your line of credit for “good behavior,” which means paying your bills on time, every time. Eventually, you’ll be a candidate for unsecured credit again. Be sure to read the fine print in the agreement for all secured cards and loans, and confirm that you will not be charged additional fees.

Automate your bill payments. Set up automatic bill pay on all of your existing credit accounts to make certain that creditors are always paid on or before the due date. Do not solely count on grace periods when you are trying to rebuild your credit. An alternative to automatic bill pay is to use the bill reminder features on your phone or computer. If you have missed payments in the past, commit to starting good habits now. You can rebuild a healthy credit score by paying every bill on time, every time. On the contrary, skipped or late payments will reduce your credit score further.

Keep your goals in mind and be patient. Rebuilding credit can be frustrating and requires patience. However, in time, negative information in your credit report will reduce its influence on your credit score. Items such as foreclosure come off after seven years, while Chapter 7 bankruptcy remains for ten. According to the Fair Isaac Corporation (FICO) (n.d.-a), the older the item, the less influence that particular negative item will have on your FICO credit score.

Michigan State University Extension has a new online toolkit – Starting over after Foreclosure – that has additional information on re-establishing credit and assests after foreclosure. The toolkit is designed to help people who have been through a home foreclosure (i.e. an example of a financial crisis) to help them rebuild their financial lives.

Michigan State University Extension offers a number of educational programs including programs on financial management and housing education. Visit MIMoneyHealth.org where there are a number of educational materials and resources available for free.