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If your credit has taken a hit, a substantial amount of time may lapse before you start to see any progress with your credit score. Although the process of rebuilding your credit might seem tedious, it is definitely worth the effort.

Following these five steps can help you in your efforts to rebuild your credit.

1. Dispute Credit Report Errors

Recent studies have found that one in five consumers have found potential errors on their credit reports. Therefore, it is important to review the contents of your credit report from each of the three major credit reporting agencies (CRAs) – Experian, Equifax and TransUnion — for accuracy, and report all discrepancies to them. To do so, submit a copy of your credit report that highlights the items in question along with a dispute letter via certified mail to the CRA that issued the report containing the error. In the body of the letter, be sure to provide a detailed explanation of why the information in question is erroneous. Under the Fair Credit Reporting Act, the CRA must respond to your dispute within 30 days in most cases. In the event your dispute is rejected, request that an addendum be added to your credit file disclosing this information.

2. Pay Down Debt Balances

Outstanding debt balances determine 30% of your credit score. The more debt you incur, the more your debt-to-available credit ratio increases, which subsequently lowers your credit score. To pay down outstanding debt balances, closely examine your budget and use the funds that would otherwise be spent on variable expenses to allocate funds toward these obligations. Start with those debts with excessive APRs to avoid the minimum-payment trap. However, continue to make timely payments on all other debts to avoid late fees, penalties and further damage to your credit score.

3. Apply for Credit Sparingly

Credit offers may appear to be enticing, but it’s never wise to apply for a ton of credit card offers at once. That’s because 10% of your credit score is determined by the number of new credit applications, and too many inquiries may make you appear a bit risky to prospective lenders. Not only that, but if you take out – and use — more credit than you can responsibly manage, your credit score will also be affected in a negative manner.

4. Pay Your Bills on Time

Payment history accounts for 35% of your credit score, so it is essential that you make timely payments each month. Another important factor to consider is that late payments can be reflected in your credit score for up to seven years after each occurrence. If you have a hard time paying your bills on or before their due date, try contacting the creditor to see if an arrangement can be made or if they can change your billing cycle. On the other hand, if your tardiness is not related to financial hardships, pay your bills as soon as you receive them, enroll in electronic payment or set up payment reminders to avoid remitting late payments each month.

5. Refrain From Closing Old Credit Cards

Although it may be tempting to close those credit cards that may be sitting around collecting dust, the length of credit history makes up 15% of your credit score. In addition, if the credit card(s) contributes to a large amount of your available credit, your debt-to-available credit ratio will also be adversely affected if the card is closed. Therefore, it may be wise to keep the accounts open, but be sure periodically use the card to avoid dormancy fees.

As you work to build – or maintain – your credit, it’s important to monitor your credit score for changes that could indicate a problem, and to track your progress.  There are tools that can help you do that, such as Credit.com’s Credit Report Card, which gives you an updated credit score every month for free, plus an overview of your credit profile so you can see which areas need work.

Even if your credit seems irreparable, it is never too late to get started. The key is consistency and taking a proactive stance to avoid future actions that can have a detrimental impact on your credit score.

Image: Top Photo Group

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