Tips for improving a bad credit rating when you have massive credit card debt

Toni will soon be opening the champagne because she's finally paying off her credit card debt -- after four years of making payments!

Now, she wants to know how to improve her bad credit rating....

"Four years ago I turned all of our credit card debt over to a credit counseling service, and I have been making payments ever since," says Toni on my easy ways to get out of debt article. "In two months we will be credit card debt free! My questions are 'What does this do for my credit rating which isn't so great at the moment?' and 'How can I repair my rating?'"

I did a little digging, and here's what I discovered:

First, get out of debt by paying off your bills or loans. Paying off debt is the first step to repairing your credit report. You can't improve your credit rating unless you're out of a financial crisis. So, the first step to rebuilding credit is to get out of debt the "traditional" way : by creating a budget and living frugally.

Consider consolidating your bills into one monthly payment. Some debts are too big to pay off the "traditional" way (budgets and frugal living). If you think your debt is too massive to pay off, consider consolidating your debt into one monthly payment . You don't necessarily need to work with a credit counseling service or debt management company.

Start using credit cards again. Using a credit card every month -- and paying it off every month -- can increase your credit rating because it shows you can handle your money wisely. "You can't raise your scores if you don't use credit," says Liz Pulliam Weston, author of Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number that Shapes Your Financial Future. "Credit scores try to predict how well you're likely to use credit in the future by how well you've used it in the past. So while living a cash-only lifestyle may do wonders for your wallet, it won't boost your scores. In fact, without continuing use of some type of credit, eventually your credit reports won't even generate credit scores."

Apply for a major credit card: Visa, MasterCard, or Discover. Retail cards (Sears, the Bay, etc) or gas cards can help rebuild credit, but you need at least one major credit card to make an impact. "If you can't qualify for a regular card, consider a secured version, for which you make a deposit with an issuing bank," says Weston. "You can find offers at,, and Index Credit Cards, among other sites. Just make sure the card reports to all three bureaus, and try to get a card that converts to a regular credit card after 12 to 18 months of on-time payments."

Use your credit cards for items you'd normally purchase with cash. The trick, of course, is NOT racking up your credit cards so high that you can't pay them! Instead, use your credit cards for things you'd buy anyway: groceries, gas, household bills, etc. Then pay off that monthly credit card bill before it's due. This is an easy, effective way to repair a bad credit rating.

Be patient. Repairing a bad credit rating can take time; the amount of time it takes depends on your financial situation. Weston says you can see an improvement in your credit score within 30 days if you pay off significant chunks of a large credit card bill…but digging out of foreclosures or financial bankruptcies takes longer.

Source: Raise Your Credit Score to 740 by Liz Pulliam Weston.

Laurie Pawlik-Kienlen is a full-time writer and blogger who created and maintains five "Quips and Tips" blogs: