How to Rebuild Bad Credit and Improve Your Credit Score
Make Your Way From Bad Credit to Good Credit
Getting rid of the negative credit report information and catching up on past due bills is the best way to start rebuilding bad credit. To increase your score to a level high enough to get approved for credit card and loans and qualify for better interest rates , you’ll have to go beyond these initial steps. You'll have to prove to new creditors and lenders that you can handle credit responsibly and won't default on new applicaitons if you're approved.
Getting started rebuilding your credit might be difficult, but once you build momentum, you’ll be coasting your way to a good credit score.
Start By Getting New Credit Accounts
If bad credit has left you without any credit cards, you'll have to get at least one new account. Many people swear off credit cards after bad credit fearing that new credit cards will only get them in trouble again. However, avoiding credit card makes it more difficult to rebuild your credit. Using a credit card the right way will help you establish a positive payment history and put you on track to building a better credit score.
Having a low credit score makes it hard to get approved for a credit card from a major bank. Fortunately, you still have some options.
- Retail Store or Gas Credit Card
- Secured Credit Card
- Your Local Bank or Credit Union
- Credit Cards for Bad Credit Scores
Don't apply for too many credit cards at once.
Each application affects your credit score, making it harder to get approved for a another account.
While you're on the hunt for a new credit card, watch out for subprime credit cards that prey on people with bad credit. These credit cards often have high interest rates and extremely high fees that make credit unaffordable.
A lot of people find themselves right back in debt with damaged credit after trying to rebuild with one of these types of credit cards.
You should also avoid prepaid credit cards as a means to rebuild bad credit. While you can get a prepaid credit card regardless of your credit history, they don't report to credit bureaus - because they're not credit cards. No matter how responsible you are, using a prepaid card won't help your credit.
It's important to deal with denials in the right way. If your credit card application is denied, don't keep applying for credit cards. Instead, wait to get the letter in the mail that tells you the specific reasons you were denied. Your being turned down may have nothing to do with your credit score, but could be related to another factor, like your income.
Build Better Credit Habits
As the saying goes, “If you do what you always did, you’ll get what you always got.” To build new credit, you must replace your credit-damaging spending habits with some new, better ones. Otherwise, you’ll end up back where you’ve worked so hard to get away from.
Gone are the days of charging things you can’t afford, paying just the minimum, and skipping credit card payments.
Improving your credit score means staying well below your credit limit and paying your credit card bills on time, preferably in full.
- Dos and Don’ts of Using Credit Wisely
- Charging Only What You Can Afford
- 5 Ways to Build a Good Credit History
Remember, your old bad habits led to bad credit. Improve your spending habits and you'll improve your credit score.
Pay Everything On Time
Payment history is the most important factor for rebuilding your credit. Even if a payment isn't regularly listed on your credit report, it can eventually wind up there if you fall behind on payments. Avoid delinquencies on any accounts, even small ones like library fines, school lunch, and medical bills. More businesses are using collection agencies to follow up on their unpaid customer accounts. If one of your accounts goes to collections, it gets reported to the credit bureaus and will stay on your credit report for seven years.
It will ruin all the progress you've made so far.
Replace Bad Credit With Good Credit
If practice really does make you perfect, the next step is to put your good credit habits into practice. Your bad credit won’t improve until you show your creditors that you have what it takes to build a good score. That means charging only what you can afford and paying your bill on time each month. During this rebuilding period, don’t take on too many credit cards because it can get hard to manage your balances and payments. One or two credit cards is plenty to get you started.