If you’re debt free thanks to good financial planning (such as debt consolidation), you may now wonder how to repair your credit report. These tips for repairing a bad credit rating are based on a question from a reader who worked with a credit counseling service to pay off her debt…

“Four years ago I turned all of our credit card debt over to a credit counseling service, and I have been making payments ever since,” says Toni on Easy Ways to Get Out of Debt and Solve Money Problems. “In two months we will be credit card debt free! My questions are ‘What does this do for my credit rating which isn’t so great at the moment?’ and ‘How can I repair my rating?’”

Get out of debt by paying off your bills or loans. Paying off debt is the first step to repairing your credit report. You can’t improve your credit rating unless you’re out of a financial crisis. So, the first step to rebuilding credit is to get out of debt the traditional way: by creating a budget, living frugally, and focusing on achieving your financial goals.

Get out of debt by consolidating your money owed into one monthly payment. Some debts are too big to pay off the “traditional” way (budgets and frugal living). If you think you’ll never get out of debt, consider consolidating your debt into one monthly payment. You don’t necessarily need to work with a credit counseling service or debt management company.

Start using credit again. Using a credit card every month — and paying it off every month — can increase your credit rating because it shows you can handle your money wisely. “You can’t raise your scores if you don’t use credit,” says Liz Pulliam Weston, author of Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number that Shapes Your Financial Future. “Credit scores try to predict how well you’re likely to use credit in the future by how well you’ve used it in the past. So while living a cash-only lifestyle may do wonders for your wallet, it won’t boost your scores. In fact, without continuing use of some type of credit, eventually your credit reports won’t even generate credit scores.”

Apply for a major credit card: Visa, MasterCard, or Discover. Retail cards (Sears, the Bay, etc) or gas cards can help rebuild credit, but you need at least one major credit card to make an impact. “If you can’t qualify for a regular card, consider a secured version, for which you make a deposit with an issuing bank,” says Weston. “You can find offers at CardRatings.com, CreditCards.com, and Index Credit Cards, among other sites. Just make sure the card reports to all three bureaus, and try to get a card that converts to a regular credit card after 12 to 18 months of on-time payments.”

Use your credit cards for items you’d normally purchase with cash. The trick, of course, is NOT racking up your credit cards so high that you can’t pay them! Instead, use your credit cards for things you’d buy anyway: groceries, gas, household bills, etc. Then pay off that monthly credit card bill before it’s due. This is an easy, effective way to repair a bad credit rating.

Be patient. Repairing a bad credit rating can take time; the amount of time it takes depends on your financial situation. Weston says you can see an improvement in your credit score within 30 days if you pay off significant chunks of a large credit card bill…but digging out of foreclosures or financial bankruptcies takes longer.

If you have any questions about paying credit card debt or repairing bad credit ratings, please comment below…

Source: Raise Your Credit Score to 740 by Liz Pulliam Weston.


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1 thought on “How to Repair a Bad Credit Rating After Paying Credit Card Debt”

  1. The final point is a crucial one: be patient. Repairing your credit is not going to be an overnight job, it’s likely to be a long haul.

    That’s possibly the most difficult aspect of it. Anyone can start to repair their credit rating but its a case of following the practices that you start. You’ll need to be disciplined but it will be worth it in the end.