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 will have to go beyond these initial steps.
You will have to prove to new creditors and lenders that you can handle credit responsibly and won’t default on new applications if you are approved. Getting started rebuilding your credit might be difficult, but once you build momentum, you will be coasting your way to a good credit score, according to www.thebalance.com.
Start by getting new credit accounts
If bad credit has left you without any credit cards, you will 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 into 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 even with poor credit.
Don’t apply for too many credit cards at once. Each application affects your credit score, making it harder to get approved for another account.
While you are on the hunt for a new credit card, watch out for 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 bureau — because they are not credit cards. No matter how responsible you are, using a prepaid card won’t help your credit.
It is 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 will get what you always got.” To build new credit, you must replace your credit-damaging spending habits with some new, better ones. Otherwise, you will end up back where you have 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.
Remember, your old bad habits led to bad credit. Improve your spending habits and you will improve your credit score.
Pay everything on time
Payment history is the most important factor for rebuilding your credit. Even if a payment is not 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 bureau and will stay on your credit report for years. It will ruin all the progress you have 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,are plenty to get you started.
How to get a credit card with bad credit
People with bad credit—usually have the fewest options for credit cards. That is because few credit card issuers want to take the risk of extending a credit limit they may not get paid for. The lower your credit score, the harder it will be to get approved for a credit card—but it is not completely hopeless. There are options out there for those with bad credit.
Know your credit score
You probably know you have bad credit because you have previously applied for a credit card, loan, or other credit-based service and have been denied.
Avoid applying for credit cards aimed for people with high credit scores just to see if you can get approved. You are very likely to be denied and the additional applications can damage your credit score even more.
You can typically tell a credit card is aimed at someone with excellent credit by the benefits it provides. Credit cards with excellent rewards, low APRs, and promotional interest rates are almost always aimed at consumers with excellent credit. Applicants with poor credit scores are usually denied.
Beware of fee harvester, or subprime credit cards, that charge high upfront fees that take up most of your credit limit.
Don’t expect this temporary credit card situation to be perfect. Credit cards for people with bad credit don’t have the most attractive credit card terms. Security deposits, annual fees, high interest rates, and low credit limits are among the features you may have to deal with, but just for a short time.