6 easy tips to rebuild your credit score

Last week, the IndexCreditCards.com blog ran a piece under the headline "Credit scores pose hidden dangers." It stressed how much you can needlessly pay in higher mortgage, auto loan and credit card rates if your credit report is looking at all shabby. And it promised to revisit the subject.

Well, here we are with six easy tips to rebuild your credit score:

1. Establish your credit score.

Your first step is to find out what your credit score is. You're entitled to a free credit report once a year. However, it might be worth subscribing to one of the services that continuously monitor reports, such as GoFreeCredit.

2. Cherry pick easy debts.

If any of the debts shown on your report are owed to companies that have gone out of business or merged with other organizations, then ask for the liability to be verified. If the creditor can no longer provide the necessary evidence, you can demand that the debt be removed from your report.

3. Pay down what you can--but prioritize.

It is vital that you stay current on all the accounts that appear on your report. However, your score is unlikely to improve if you pay down non-revolving credit (such as mortgages, student loans and car loans) early. To start with, focus on your credit cards. If your priority is to lower your indebtedness, pay down the plastic with the highest credit card rates first. However, if you mainly want to boost your credit score, begin by paying down any balances that are higher than 30 percent of your credit limit. Ultimately, your goal should be to drive down your "credit utilization ratio" even further.

4. Negotiate with your credit card companies.

If you're struggling to make minimum payments, call your credit card companies and ask them if they'll accept lower amounts for a while. If they go along with your proposal, ask them if they're willing to report to the credit bureaus that by sticking to your new arrangement you're "paying as agreed." That would mean that your credit score wouldn't suffer even though you're paying less than your standard contract requirements.

5. Add a statement.

You're entitled to leave a short personal statement on your credit report that explains why you've had difficulties. Try to be factual rather than emotional. Your objective is to persuade the reader that you've had understandable short-term issues that have now been--or soon will be--resolved.

6. Consider secured credit cards.

If your credit cards have already been cancelled, it might be time to consider getting a new one. The trouble is, your application for a mainstream card is likely to be unsuccessful. Instead, consider secured credit cards. You have to pay a deposit in advance on these, and that amount is likely to be your spending limit. So you're using your own money. But you can normally expect your deposit back in full when either you cancel your card, or the issuer upgrades you to one of its ordinary, unsecured credit cards. Just make sure that you choose one of the many secured credit cards that report to the three big credit bureaus. That way, you have the opportunity to rebuild your credit score. One that's well worth checking out is the Public Savings Bank Open Sky Secured Visa Credit Card.

Published 2/21/11 (Modified 4/20/12)