How to Rebuild Your Credit

Rebuild Your Credit with a Secured Credit Card

 

One way to start to rebuild your credit is to apply for a secured credit card.  With a secured credit card you will be required to maintain a savings account.  The credit card company will issue you a line of credit based on the amount you deposit into that savings account.   The required savings deposit for a secured credit card may range from a few hundred to several thousand dollars.   The credit line for your new secured credit card will be a percentage of your deposit, typically 50 to 80 percent.

 

You may also may have to pay application and processing fees to obtain a secured credit card.  Beware, this can sometimes amount to hundreds of dollars. Before you apply for a secured card, be sure to ask what the total fees are and whether they will be refunded if you’re denied a credit card.

In addition to the application fee, a secured credit card usually requires annual or monthly service fee ranging anywhere from $30 to $50 to $150!  A secured card also has a higher interest rate than an unsecured card.

How can I get credit?

If you do not have credit, the best place to start is with a credit card.

Compare several credit cards. Apply for the one that gives you the best deal. Look for:

• a low annual fee
• a low APR, or annual percentage rate
• lower fees:
  • if a payment is late
  • if you go over your credit limit
• a long grace period. This is the time between when you spend money and when the card charges you interest. Look for one that is at least 25 days long

If you cannot get a regular credit card, try to get a secured credit card. Apply only for cards that report your history to the three credit reporting companies.

Look for a secured card with:

• no application fee
• a low APR, or annual percentage rate
• lower annual fees
• no processing fees
• higher interest rates on the money you deposit

How can I improve my credit?

You can use credit to build and improve your credit history.

• Use your credit card a few times a month.
• Buy things you can pay for that month.
• Pay the whole credit card bill every month. Do not leave a balance on your card.
• Pay your bill by the date it is due. Paying even one day late will cost you money.

People who do this start to see a better credit history. But it takes time.

Once you’ve obtained a secured credit card your purchase and payment activity will be reported to the credit bureaus monthly, thus making it a good way to start to improve your credit score and rebuild your credit.  When you use this secured credit card for a purchase it is not deducted from your security deposit.  You must make a payment to the credit card company for your purchases.  Be sure to pay your bill for your purchases on time every month!  If you don’t your credit score will be further negatively affected!

When you experience a financial challenge your credit record could suffer Rebuilding it takes time. There are no shortcuts or secrets. The steps below can help:

1. Pay your bills on time, every time “On time” means the payment gets to the company by the day the bill is due. If you pay by mail, put your payment in the mail a few days before it is due.  An even better option is to set up automatic online payments through your bank account.
2. Don’t get too close to your credit limit. Credit scores consider how close you are to being
   “maxed out” on credit cards. If you use too much of your credit limit, it may hurt your credit score. Some experts advise using no more than 30 percent of your total credit limit – while others say you should use less than 10 percent.
3. Don’t apply for too much credit in a short time. Your credit score may go down if you apply for or open a lot of new accounts in a short time. This includes getting a new card so you can transfer balances, or opening a new store card account so you can get a discount.
4. If you do not qualify for a regular credit card, try a secured card. Many banks and credit unions offer secured credit cards. With most of these cards, your credit line starts out small. You put an amount equal to your credit limit in an account as a deposit. As you show you can pay on time, your credit limit may be raised and you may have your deposit refunded. Fees and interest rates can be high
   for secured cards, but using one can help you to establish a credit record.
5. If you pay with a credit card, pay your balance off every month.
   You can build credit by using your credit card and paying on time, every time. Pay off your balances
   in full each month to avoid paying finance charges. Paying off your balance each month can also build better credit than carrying a balance, because it helps keep you from getting too close to your
   credit limit.
6. Keep it up. Credit scores are based on your overall experience with paying your bills over time. The longer you have credit and pay on time, the more information there is to show you’re a good credit risk.
7. Check your credit reports and fix errors right away. Your credit report shows your history of loans and borrowing. You can get a free printed copy of each of your credit reports from the three nationwide credit reporting companies every 12 months at annualcreditreport.com. Equifax offers six additional free credit reports every 12 months, When you visit the site, you may see steps to view more frequently updated reports online. This gives you a greater ability to monitor changes in your credit. You may find incorrect information that is bringing your score down. If you do, file a dispute with the credit reporting company and with the company
   that was the source of the information.

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