Five Steps to Re-Building Credit Quickly

When it comes to credit, there are two statements that remain both reliable and undeniably correct: good credit takes time to build and one mistep can devastate your credit. I know, because I've done both. The lesson that the credit system wants us to understand here is that long-standing reliability with our finances is vital. Ultimately, it's how bureaus measure our credit scores. Yet, when it comes to rebuilding credit, most people shrug at the concept.

What is good credit?
I can tell you what good credit is not, which is actually a better place to start. If your FICO score is under 620, you have poor credit. People with low scores have trouble obtaining credit cards, opening new bank accounts, buying a car or even getting a job. Good FICO scores are upwards of 750, and this is how you get there:

Get a credit card-or dust off an old one
Open a new credit card or line of credit, or begin to use an old credit card for expenses. However, since it is difficult for consumers with substandard credit to get a credit card, this can feel like a catch-22 proposition. I found a secured card that allowed me to deposit money in exchange for my credit limit. After six months of timely payment history, the company rewarded my responsibility with credit limit increases. After a year of timely payments I received my deposit back. Start here.

Remember, racking up charges isn't enough. The credit bureaus are looking for payment history on this card. Charge only what you can afford to pay off at the end of the month.

Pay off balances
I paid the balances off on my credit cards each month. This helps propel your credit report from zero to hero. Normally it takes 12 months of acceptable payment history to "erase" one missed or late payment. Keep moving forward.

Settle bad debts
I had some debts that were charged off and sold to collection agencies. I contacted these agencies and offered to settle the debt for 50 percent of the balance, if they would sign a statement agreeing to publish the debt as settled to the credit bureaus and cease collection activity. Once I received an agreeable reply, this is exactly what I did.

Add an installment loan
After I cleared away the chaff of negative items, I was in a position to finance a car. I knew it would be at an astronomical rate with poor credit, so once I had reached that magic 620, I applied for a car loan, got approved and added a new player to my credit mix-also improving my score.

Pay on time
While this is common sense advice, it never hurts to pass along a good reminder. Set up a system that works for you to help keep your payments timely and your credit score will rise. I use my online banking bill pay reminders and bill reminders in my calendar for my iPhone to help keep track of dates, and notify me to upcoming payments. Create a system that you are comfortable using that won't let you down. This relationship is different for everyone; some people are pen and paper people and others are technologically inclined. Find what works for you and stick to it.

More from this Contributor:
The Top 5 Ways to Improve Your Credit
The Power of Credit Rescoring
Make Those Rewards Cards Work for You