John P. Napolitano: Rebuilding credit score takes time and effort

John P. Napolitano

You were curious, called the number plastered across the television screen and now know the sad truth about your credit score - it's a lot lower than expected. But buck up, because with time and effort you can raise that sorry grade and get back in the good graces of creditors.

Before we get into how to increase your score, a few words about the importance of a good credit report. A good score can help you establish yourself financially - it essentially provides creditors with a gauge to determine the amount you can borrow, including interest rates.

A bad report - brought on by bankruptcy, late payments, bounced checks or any combination of financial recklessness or misfortune - causes your credibility to suffer among creditors.

So how can you restore that score? It will take commitment and perhaps up to seven years to turn things around, but here are a few basic steps.

Shop around for a secured credit card. These cards require an initial cash deposit as collateral but you can charge up to that amount, thereby rebuilding your credit provided you make payments on time.

Sign up for automatic bill paying for all of your bills. This will force you to not spend in excess of what you have and will automatically get your bills paid on time.

Consider using your entire next paycheck to pay down cards that need a substantial payment the most. For your living expenses between now and the next paycheck, use the card. At the end of the day, you may be thinking that this doesn't really get you anywhere, but it does. For a short period, your account will be charged less interest. Also, the large payment will help to show good faith and look good on your record.

Keep a firm grip on your debt-to-income ratio. Personal debt, excluding any mortgage, should never exceed 15 percent. When possible, pay more than the minimum on credit cards not only to reduce the principal but to establish the good faith important to potential creditors.

Eliminate any unnecessary cards or lines of credit. Even if you have no balance, your credit report will show all of the credit that is available to you. This will lower your score if you also have a history of defaults or late payments.

Keep a watchful eye on your credit report. That goes for everyone, regardless of whether you're trying to turn a poor score around or think you're on the A-list. Even those with the best credit practices can have their reports tainted by errors. To be on the safe side, check your report annually to be certain all information is correct. You can get free annual credit reports through www.ftc.gov.

Negative information can be reported on your credit report for up to seven years. But with each solid step forward that you take, those missteps from the past will become less damaging to your financial future.

John P. Napolitano is the CEO of U.S. Wealth Management in Braintree. Do you have a financial issue you want him to answer? E-mail him at biznews@ledger.com or call him at 617-786-7073.

The Patriot Ledger