Rebuilding Your Credit--Bouncing Back From a Checkered Credit Past

If you have had credit difficulties in the past, don't give up--it is possible to bounce back and rebuild your credit history. The important thing to remember is that from now on, any new credit you open must be paid on time--every time. You will begin creating a better credit picture, which potential creditors may use to gauge how serious you are about putting your credit past behind you.

In fact, being able to repay a variety of new accounts may be the most important goal, so devising a strategy to open and pay off as many different kinds of new accounts as you can is a better objective than simply incurring new revolving debt--especially if you are working towards future goals such as a mortgage or other large loan.

Rebuilding your credit can be similar to starting over from scratch, and starting small may be the easiest option. For example, department store credit cards can be useful, as most such issuers report payment histories to the major credit bureaus.

It may be best to use the new accounts in moderation, and make payments that are more than the minimum. You can also pay off the balance in full each month. However, this will work against establishing a new payment history unless you continue to make new charges each month and pay them off. Plus, you might not want to get in the habit of relying on credit cards for everyday purchases. Try these tips:

• Carry a very small balance and continue making payments (the positive payment history will continue to show up on your credit report and improve your credit standing).
• Avoid carrying a balance that is more than 30% of your credit limit (creditors may view it as excessive debt that you may not be able to stay current with).

Cosigning

A quick way to jumpstart your credit is to find a person willing to cosign for a small loan or credit card. If you can stay current on a major credit card account or small auto loan, this will speed up the process of re-establishing good credit on your own.

If you have money set aside, you can open such accounts for the sole purpose of paying them off. Then try to open a new account on your own. You may have to wait until your new credit history has had a chance to gain momentum, however, demonstrating that you are not depending on certain credit cards and loans for survival. That's why opening and paying down accounts may make it a little easier to get more credit.

Secured Cards

Without a cosigner, obtaining a major credit card may prove difficult. A good way to get there on your own is by obtaining a secured card. With a secured card, the advantages are:

• The deposit of a set amount of money with the creditor to guarantee your credit limit-therefore, it's impossible to overspend.
• Cards are available with VISA, MasterCard and American Express logos, and offer the purchasing power of a major credit card.
• On your credit report, there is no notation to indicate that the card is secured. In other words, to potential creditors it will look like you've already been granted a major credit card account

However, some issuers don't report to the credit bureaus--make sure that you select a secured card from a creditor that does. A secured card is an excellent springboard to obtaining unsecured credit. Beware of secured cards that only allow you to use it for merchandise only, as well as cards that charge a fee to sign up.

With patience and timely repayments, you will likely be able to build a new credit history that creditors will look upon favorably when making decisions about your ability to handle even more credit.