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Rebuilding Damaged Credit

Nov 17, 2007
We've all had times of uncertainty in our lives. Job loss, medical problems, divorce, a death in the family and other life-changing events can all be factors in creating financial distress. During these times bills pile up, payments are missed, automobiles repossessed and houses foreclosed. If we are able to recover, scars are left on our credit report to remind us of the financial hardship we endured. Most people give up, hoarding cash under their mattress and swearing off credit cards forever. Living off the grid might seem like a safer place to be but then life happens again and we want to buy a house or a car. There is a sudden desire to rekindle our credit but the task seems daunting. How can we begin rebuilding our damaged credit?

The good news is that the credit system is set-up to give us a do-over. There are two main factors in rebuilding credit. First, time is on our side. The old saying "time cures all" is alive and well in the credit world. Collections that are older than two years have only a small impact on our credit score. Late payments and other derogatory items fall off a credit report after seven years. Second, we must re-establish positive credit history. This is the part that most people struggle with. The knee-jerk reaction is to stop all credit activity, however, keeping credit lines open and building positive payment history can accelerate your credit score.

Think of credit like school; you can barely pass high school but go on to graduate with honors in college. Employers don't care what you did in high school if you graduated Suma Cum Laude in college. Creditors think the same way, your most recent credit has the highest impact on their perception of your ability to repay debt.

So how do we begin our journey to credit re-birth? Here is a list of the basic activities you can perform to begin rebuilding your damaged credit:

1. Get added as an authorized user on a family member's credit card that will has a good payment history. This will not impact the owner's credit.
2. Remove your name from authorized accounts that hurt your score.
3. Take out a small title loan or installment loan for an automobile or other personal property.
4. Take out a secure credit card - ask your bank how.
5. Do not contact consumer credit counseling companies. These types of companies are viewed similarly to a bankruptcy by the credit bureaus.
6. Don't forget, time is on your side:
o Inquiries made by creditors fall off your report 2 years from the reporting date
o Late payments fall off 7 years from the reporting date
o Bankruptcy and foreclosure falls off 10 years from the reporting date

In my experience, rebuilding damaged credit can be a fairly simple and short process if you get sound advice and are willing to spend a little time.
About the Author
Brett Nordin is a veteran mortgage broker and credit analyst. To get a FREE guide to Credit Repair and Credit Score Maximization Click Here
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