How to Repair Your Credit the Right Way

repair credit

When it comes to credit, most people fall into one of three groups. You’re either trying to build credit for the first time, maintain your existing credit score or bring bad credit back from the brink.

Regardless of what your goal is, you’ve got to have a solid plan for reaching it. We’ve got a road-map for every stage of the way so read on to find out how to get there.

To build credit, you need to get some credit but if it’s early in the game your options might be limited. Here are four ways you can get the ball rolling:

1. Try a credit builder loan

A credit builder loan is a short-term loan that you can use to establish credit. These loans are offered by banks and credit unions and they’re typically for a small amount, usually no more than $1,000.

Instead of actually getting the cash in hand, it’s parked in an interest-bearing account. Once you pay the loan off, you’ll get the money back along with any interest earned. Not only that, but you’ve also built up a positive payment history in the process.

2. Get a secured credit card

A secured credit card is a stepping stone to building credit. With this kind of card, you have to put up a cash deposit to get a card.

You can use a secured card to build credit, but they’re not hassle-free. These cards tend to charge higher interest rates and fees compared to a traditional credit card so you need to make sure to review the rates and costs carefully before you settle on one.

3. Ask to be an authorized user

An authorized user is someone who has charging privileges on someone else’s credit card account, like a parent or a spouse. You get your own card with your name on it and you can reap some positive credit benefits even if you don’t use it.

The reason? The original cardholder’s account history for the card will get transplanted onto your credit report. If they’ve always paid on time and kept the balance low, it’ll help to bump up your score.

4. Open a store credit card

If you’ve ever been shopping at a major retailer you’ve probably been offered a store credit card at some point. These are cards that are branded to specific stores like Macy’s or Target.

These cards have some drawbacks, since they usually have higher APRs and lower credit limits, but they’re great for newbies who are trying to build credit. It’s usually easier to get approved for a store card, even if you have a lower credit score.

The fact that you have limited charging power is also a plus since it keeps you from getting in over your head with debt. Just remember to pay your card off in full each month so you don’t get gouged on the interest.


After you establish credit

Once you’ve gotten your credit established, you can’t just set it and forget it. If you’re ready to amp up your score by 100 points or more, here’s what you need to do next.

Wipe out your credit card balances

The fastest way to send your score shooting up is to pay off your credit card debt. Carrying too much debt drags down your credit utilization, which means how much of your total credit line you’re using. The lower your balances are, the better where your score is concerned.

Ask for more credit

Aside from paying down your credit you can also improve your credit utilization by asking for a limit increase. This is tricky, however, since your credit card company might want to pull your credit report before they approve you.

Every time a lender checks your credit it knocks a point or two off your score so you want to avoid a new inquiry if you can.

Keep your accounts open

Once you pay off your cards you might think of just closing them for good but that could be a mistake. The older your account history is, the better your score should be so you may want to consider keeping old accounts open and active. Use your card every once in awhile and then pay it off to keep the account active.

Slow down on new credit applications

Every time you apply for a new card, a new inquiry hits your credit report and your score drops by a few points. To keep your credit score from slipping too much, scale back on how often you open new accounts.

If you’re trying to repair your credit

There are lots of things that can cause your credit score to tank but it’s not the end of the world. It might be an uphill battle to start but it’s possible to work your way back towards a good score if you know what to do.

If you filed bankruptcy or lost a home to foreclosure, then the cause of your bad credit is pretty clear cut but it’s not always obvious.

That’s why it’s so important to know what’s on your credit report. If there’s an error you missed, someone is opening fraudulent accounts in your name or your credit utilization is just too high you’re not going to be able to fix if it you don’t know about it.

Bring past due accounts current

Your payment history is the single most important thing that impacts your credit score. If you’ve got bad credit because you missed payments or paid late on one or more of your accounts, the only way to fix the damage is to be consistent going forward and make your payments on-time.

If you have bills outstanding, call up all of your creditors and see if you can work out a payment plan. The faster you can get things caught up the easier it is to move on to the next step.

Put your bills on autopilot

Once you’re current on your bills, you don’t want to fall behind again. Setting up automatic payments through your bank is one way to keep track of your due dates. You can also link up your accounts to a free budgeting app like Mint to get reminders of when your bills are coming up.

Working towards rebuilding credit isn’t a once and done thing. You have to practice good financial habits on a regular basis. Wherever you’re at on the credit scale, working your plan consistently and being financially responsible is a key to moving up.