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Some of the best ways to restore a credit rating are to start paying bills on time, correct errors on your report, and pay down account balances. Many people believe that eliminating credit accounts will help restore a credit rating, but this actually will work against you. Having a solid mix of credit can also help to restore a credit rating in the long term.
One of the most important things that you can do to restore a credit rating is to start paying bills on time. As much as 35% of an individual credit rating is composed of the timeliness of payments. If you make even one late payment, it can have devastating consequences on your credit rating. This means that you need to get your bills to a point in which you can afford them and make a plan to always pay them on time. After a few months of paying all of your bills on time, you should notice a slight improvement in your credit rating.
Another step you should take is to have any errors fixed on your credit report. In order to do this, you need to get a copy of your credit report from one of the major credit bureaus. Review your report for errors and then notify the credit bureau if you find any. If you take the proper steps, an error should be fixed within 90 days of reporting it to the credit bureaus.
When you are trying to rebuild your credit rating, you also need to try to pay down the balances on your credit accounts. If you have credit card balances built up, paying them down should be your top priority. If the balance on a credit card is more than 30% of the available credit limit, you need to get the balance down below that threshold.
Many people make the mistake of canceling all of their credit cards and eliminating credit accounts. When you do this, it is actually going to work against you when trying to restore a credit rating. You have to use credit in order to build it back.
You should also strive to have a nice mix of different types of credit. For example, you may want to have some installment loans such as a mortgage or auto loan and some revolving credit such as a credit card. Having different types of credit shows the credit bureaus that you can handle your money.