Module 3.3.2: Rebuilding your credit article

A step-by-step guide to rebuilding your credit, written by Richard Thripp (as are all text modules in this course).

Rebuilding Your Credit

The first thing you need to know is exactly what each of your credit reports say.

Go to (an official website authorized by the federal government)

Request a copy of all three of your credit reports (Equifax, Experian, and TransUnion)

You’ll need personal information including your social security number, date of birth, full name, current address, and previous address if you have moved within the past two years. You may also be asked security questions based on personal information derived from public records.

You should be able to request these reports completely online. However, sometimes this does not work, due to glitches or data entry errors in your report, identity theft, or answering the public records questions incorrectly. If this happens, you’ll have to print, fill out, and mail in the following form:

Once you have your credit report, examine it to look for derogatory information such as delinquent medical bills, delinquent credit cards, liens, and other derogatory information.

If any such derogatory information is present, you can dispute it with the relevant credit bureaus. They will then request the financial institution to verify the information within 30–45 days. If no response is received, you win by default.

“When TransUnion receives your dispute request, we will contact the data provider or information source. That source has 30 days – in some cases, up to 45 days – to investigate whether the information reported is accurate. If the data provider or source does not respond within the required timeframe, TransUnion will remove the information from your credit report. If the company that provided the information to us verifies the record, it will remain on your credit report.”


Of course, disputing legitimate information may or may not work. However, some types of black marks, such as medical bills, seem particularly prone to errors. Disputing and getting these black marks removed is the #1 most importnat thing you can do to rebuild your credit.

You should dispute the derogatory information with each credit bureau separately. You only need to dispute the derogatory information with the credit bureaus that have the information on file. This could be 1, 2, or all 3 bureaus. File your disputes through the following websites (it is also possible to do so by phone or mail):


If you legitimately owe money to a creditor, one strategy is to contact the creditor (or designee, if the creditor has sold the debt to another firm) offering to pay the debt (or a portion of the debt) in exchange for the creditor removing the account from your credit reports.

The creditor may negotiate with you. If the debt has not been referred to a collection agency yet, it is possible to negotiate for the removal of the derogatory information from your credit reports. If you are already dealing with a collection agency, it may be too late for this, but it could still help your credit, assuming the original creditor reports the payments on your credit reports. Note: the collection agency often has no control over this, so you may have to contact the original creditor directly to get them to agree to this.


If you do not have an agreement in writing, making a partial payment toward the debt will reactivate the debt, meaning it will now stay on your credit report for 7 years from the CURRENT DATE, rather than when you originally defaulted on the debt. Once you have this agreement in writing and have paid the debt in full (or settled for a lesser amount), they should remove the information within 30 days. If not, complain more.

Remember that if you reach a settlement agreement and fail to make all the payments, you are right back to owing all the debt, rather than the settled amount. Of course, your partial payments still apply, but the “deal” is off.

Source for some of the above information: (paraphrased only)

When negotiating with creditors, you do have leverage. You might be able to settle for half the amount and still get the black marks removed. It depends on what they decide. Try to get a written agreement for less than 100% of the debt. Remember, you’ll owe incomes taxes on whatever amount they forgive.


Now that you have dealt with the black marks on your credit report, it’s time to start building your credit again. For this, you’ll need tradelines.

Student loans are an excellent way to rebuild your credit. Federal direct student loans have low interest—either 3.4% with subsidized loans or 6.8% with unsubsidized loans. More importantly, there is no credit check, but they report directly to the credit bureaus each month, meaning you’ll be building your credit, while only paying very low or fairly low interest rates (stick to subsidized loans if possible).

Another option is to look into a “secured” credit card from your bank or credit union, which is fully backed by liquid collateral (cash you keep on deposit with them). Make sure to confirm that such a card will report to the credit bureaus, thereby improving your credit report. Some banks, such as Wells Fargo, have “second chance” offerings that will help you rebuild your credit.

Monitor your credit report and faux credit score on CreditKarma. After a few months with the student loans and/or secured card, you might be able to get approved for a regular, unsecured credit card with a less-restrictive credit issuer such as Capital One or First Bank Premier. You’ll probably already be getting this advertisements in the mail; often, applying with the application code from a mailed advertisement gives you better odds of being approved.

Of course, First Bank Premier typically offers no rewards, ridiculous fees, low credit limits, and annual fees. Later, when you’ve used them to improve your credit, you can cancel your card with them, after you have a better card from a reputable card issuer.


You are now on your way to having great credit! This will help you with many things in life, such as getting a low-interest mortgage, a low-interest car loan, lower insurance costs, an apartment, and certain jobs.

Going forward, make sure to protect your credit carefully. Don’t add friends or family members as authorized users or joint account-holders, unless you absolutely trust them.

And, most importantly, never cosign for a loan. Not only does cosigning leave you completely liable for the debt, but it can also ruin your credit when the signee fails to repay the loan! Instead, advise children, other family, or friends to build their credit through student loans or secured credit cards. If your child must have a car, you are better off getting the loan directly in your name (with a lower interest rate, since you now have excellent credit). Then, just have your child make regular payments directly to you. He or she is better off building credit through other methods.

By Richard Thripp