12 ways to rebuild your credit

By Susan Tompor Detroit Free Press

Rebuilding credit should be at the top of the list for 2012. Too many credit scores took fairly big hits during the recession.

“It’s been rough,” said Todd Albery, CEO of Detroit-based Quizzle, a credit information website that’s part of the Quicken Loans family.

Here are a dozen ways to deal with credit in 2012:

No. 1: Get a free credit report to see a listing of credit card debt, loans and liens. Receive a free report every 12 months from Equifax, Experian and TransUnion at www.annualcreditreport.com. You also can call 877-322-8228.

No. 2: Get a free score at Quizzle.com. Another spot for free scores: CreditKarma.com.

No. 3: Give up the notion that if you pay your bills each month you will have a good credit score. John Ulzheimer, president of consumer education at SmartCredit.com, says that paying on time only amounts to 35 percent of a credit score, and 30 percent of your score is based on how much you owe.

No. 4: Tackle debt on department store or specialty store cards, which tend to have rates that exceed 20 percent.

No. 5: Yes, throw extra money at credit card debt first. Your mortgage rate or car loan is far less than most credit card rates.

No. 6: Use cash. For a stronger credit score, use only a small percentage of the available credit on a card.

No. 7: Don’t just close credit cards. Quizzle’s Albery said consumers could hurt their scores by closing a card that has a large credit line or closing a card held for years.

Say you owe $10,000 on three cards that together have a $30,000 line of credit. You’re using 33 percent of the total available credit — not bad.

But if you close one of those cards you would owe $10,000 with a $20,000 line of credit. You’re now at a 50 percent utilization rate and your score drops.

No. 8: Be extra, extra careful about offers you get in the mail that promise ways to be debt-free in two or three years.

Gerri Detweiler, a personal finance expert for Credit.com, said a credit card companies could sue you if a debt-settlement company waits too long to pay off large balances on major cards.

Some companies claim that they’re part of a government reform effort. No such thing, Detweiler said.

No. 9: Do not agree to pay more than you are able to collection agencies. Go to FTC.gov for a video that explains consumer rights.

No. 10: Be aware of your debt-to-income ratio. How much of your monthly gross income must be used to pay debt each month? That number should be less than 36 percent, Albery said.

No. 11: Be cautious about a 0 percent balance transfer offer. Will you pay down debt aggressively while the rate is 0 percent? Or will you just have more debt when a much-higher rate kicks in six months or 11 months?

No. 12: Go a week without spending money. If you see you can easily save $50 in one week, why not set that as a goal and use that money to pay off existing debt?

Or better yet, set aside some of that money for emergency savings and use some to pay off debt?