Dear Consumer Ed:

I ran up some debt a few years ago when I was out of work and couldn’t pay my bills.  This has hurt my credit rating, and I’m having a hard time getting approved for a loan as a result.  Is there anything I can do to improve my credit score?

Consumer Ed says:

Other than bankruptcy, few actions can have a larger impact on your credit score than non-payment or late payment of bills. Most negative activity will affect your credit score for up to seven years, and bankruptcy will impact it for 10 years. Low credit scores mean lenders will consider you a “high-risk” borrower, which can translate into higher interest rates, lower credit limits or being turned down for credit altogether.

One of the best ways to improve your credit score is to establish new accounts and build a history of on-time payments. In addition, keep debt to a minimum by paying credit card balances in full each month, or at least paying more than the minimum.

If no one will give you a credit card because of your poor credit history, you can apply for a secured credit card. This is where you give a lender a cash deposit and they issue you a card with a credit limit in that amount. If you don’t pay the bill, they just keep your deposit. The fees and interest rates on a secured credit card are usually high, but it is a great way to rebuild your credit if you don’t have other options. As your credit score improves, you should be able to obtain regular credit cards with more favorable interest rates and fees.

Finally, pull copies of your credit reports so you can correct any errors that might be contributing to your low credit score.

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