How to Rebuild Credit When You Need to Start Over

Most people experience financial challenges at some point in their lives. Like many others, you might have missed payment dates because of such unexpected problems as a lost job or an accident. Missed payments or even overuse of credit can make your credit scores drop. In turn, poor credit will limit options and possibly, cost you more money.

You may have credit problems today; however, you don’t need to let them plague you forever. The sooner you find the right tools and resources to rebuilt your credit, the faster you can move on towards a lifetime of financial security.

Understand Your Current Credit Situation 

Instead of dwelling on past misfortunes, you can take steps to rebuild your credit. With the right plan in place, rebuilding your credit may not take as much time or work than you imagine. Your first — and possibly — most painful step will be to understand your current credit situation. As they say, even if it’s not good news to hear, it’s still good information for you to know.

You can obtain free credit reports from all the major credit bureaus at AnnualCreditReport.com. These days, many banks and credit cards also offer free credit scores and credit analysis online for their customers. You can make use of these valuable, free resources to begin steering your credit in the right direction.

For instance:

  • You should check for errors that you can dispute with the credit bureaus.
  • You can also see which creditors have reported you as late and which balances are close to their limits.

Stop Credit Damage

If you’re behind on bills, contact your creditors to see if they have programs to help you catch up. Even better, contact your creditors before you miss a payment date to see if they can work with you. Most banks, credit card companies, and other lenders would much rather find a flexible solution than to never collect any money they were owed.

If the task of catching up on bills appears overwhelming, consider the Federal Trade Commision’s suggestions for coping with credit problems. The FTC’s tips include suggestions for negotiating with lenders and ways to find legitimate debt counselors or debt consolidation loans.

Build Good Relationships With Creditors

While it’s always easier to get loans with good credit, you shouldn’t assume that your credit is too damaged to get any lenders to approve you. For example, a low-interest loan from a new lender might offer you the perfect way to repay high-interest debt. Of course, your commitment to making payments on time in the future can go far towards improving your credit scores within a relatively short time.

Arrange to Catch Up on Your Payments

Payment history accounts for the largest factor affecting your credit score. If you are behind on your payments, you won’t be able to improve your credit situation. Try to bring all of your accounts up to date. If you can’t afford to bring everything up to date at once, you can contact your creditors and work out a payment plan.

Open another credit card account

Another way to increase your credit card utilization ratio is to open a new account. As long as you don’t carry a balance on that card, your available credit immediately increases by that card’s limit.

Try to get a card that doesn’t charge an annual fee. Your best bet is through a bank where you already have an account. Granted, cards with no annual fee tend to charge higher interest rates, but if you never carry a balance, the interest rate is irrelevant altogether.

Remember, though, that any credit card isn’t an excuse to spend more money. Whether you get a secured card or use an unsecured card, getting a card just to “free up” more money that you don’t actually have to spend out of control won’t help you in the long run. You have to keep a tight rein on your spending