How to Rebuild Bad Credit
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 loan approval and better interest rates (which happens to be above 720 these days), you’ll have to go beyond these steps. You'll have to prove to new creditors and lenders that you can can handle credit responsibly.
Getting started might be difficult, but once you build momentum, you’ll be coasting your way to a good credit score.
Start By Getting New Credit
If bad credit has left you without any credit cards, you'll have to get one. Many people swear off credit cards after bad credit fearing that new credit cards will only get them in trouble again. However, that decision will only make it more difficult to fully 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.
- Department Store or Gas Credit Card
- Secured Credit Card
- Your Local Bank Branch
- Credit Cards for Bad Credit Scores
When you apply for new credit, don’t put in too many credit applications. It will affect your credit score, making it harder to get approved.
In your search for a credit card that will approve you, 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) so using one won't help your credit.
If your credit card application is denied, don't rush out and put in more credit card applications. 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 New 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, making minimum-only payments, 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, what you used to do with credit cards led to bad credit. Get better habits and watch your credit improve.
Pay Everything On Time
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 lands in the hands of a debt collector, it goes on your credit report for seven years, ruining 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.