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Rebuilding Your Credit History in 4 Simple Steps

by on May 19, 2008

Is your credit history in shambles?  The following are 4 simple steps to help start rebuilding it.  After all, having a poor credit history can make it difficult for you to acquire loans, get credit cards and it can even effect your ability to get a job.  Some employers run credit profiles on their potential employees because a poor credit history might indicate financial problems of prospective employees that employers should be leery of.  Furthermore, even if you do get an approval on your loan or a new credit card application, you will probably be hit with much higher interest rates because of your poor credit history.  Depending upon the state in which you live, you may even have to pay more on your car insurance if your credit history is bad.  Fortunately, there are several things you can do to rebuild your credit history and put yourself in a better financial position.

1)  Pay Your Bills On Time

This one is a real no-brainer and is absolutely critical in your efforts to rebuild your credit.  Obviously, you’ll never be successful at rebuilding if you continue failing to pay your bills on time.  Credit cards are particularly impatient with cardholders that pay late, so make certain your bills get paid well within the due date. If you’re having a difficult time getting your bills paid on time because of financial difficulties, contact the companies you owe money to and work out some sort of payment plan.  You’d be surprised at how flexible most companies can be.  Most companies are more than willing to work out some type of payment plan with their customers.  After all, arranging a payment schedule is easier than chasing you around for their money or not getting paid at all.

2)  Mind Your Credit Limits

The limits that your credit card company puts on your credit cards are not just suggestions – the companies expect you to keep your spending below that threshold.  Surprisingly, most credit cards will not be declined if you make a purchase that exceeds your credit limit because “overlimit” fees are a significant profit center for credit card companies.  What will happen is that your credit utilization score will be negatively impacted by exceeding your credit limit, which can dramatically impact your credit score in a negative way.  Not only can spending above your limit hurt your credit rating further, it may also result in an increase to your interest rate on that particular card.

3) Pay Down Your Debt

Having a lot of debt – particularly credit card debt – can really hurt your credit rating.  This is particularly true if your cards are maxed out.  In fact, if you do have a great deal of debt, it is better to have it spread out over several cards rather than having a couple of cards pushed to their limits.  The rule of thumb is to never exceed more than 30% of your credit limit on any one credit card.  And by paying down your debt, you become less of a credit risk in the card issues eyes.  So, focus on the card with the highest interest rate and pay it down while paying the minimum on the other cards.  Once the card is paid off, focus on the card with the next highest interest rate and continue this process until all of your cards are paid off.  Not only will it free you from debt, it will also greatly help improve your credit score.

4) Apply for a Secure Credit Card

If you don’t have a credit card, you might want to consider applying for one in order to rebuild your credit.  If your credit is so terrible that you cannot get a traditional unsecured credit card, you should apply for a secured card instead.  Secured credit cards are cards that secure with a cash deposit ahead of time.  The amount of money you send will determine the “line of credit” you receive.  Of course, this is not actually credit, because you’ve already effectively prepaid for the card.  At the same time, these cards work just like regular credit cards and don’t look any different from the more traditional type of card.  Make sure that the card reports to the 3 major credit bureaus, however.  This is very important.  After using this type of card responsibly for a period of time, you should see a nice increase in your credit score.

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