How to Rebuild Credit Scores by using Credit Accounts

By Lisa Phillips on Apr 2nd, 2012 in Rebuild Credit Scores

The “credit crunch”  resulted in lending institutions reducing the availability of credit, especially for those with problem credit.

Now is the time to deal with any problem credit and rebuild your credit scores. Thousands of dollars can be saved by having good to excellent credit scores.

A good credit score is at least 720. A great credit score is 750 and will practically guarantee approval with the best interest rates and rewards.

The following are tips on how to rebuild credit scores by using credit accounts:

1. Add an unsecured credit card
A fundamental component to improving credit scores involves showing creditworthiness. If your credit report reflects nothing but negative credit accounts, even if they have been  paid in full, a creditor will not have anything positive to help make a credit decision.

If your credit is poor see if you’re pre-qualified for the Credit One Bank credit card. It’s easy, fast and won’t affect your credit score! Get started with a credit line up to $1,500 with a Credit One Bank – Visa® Platinum Card. They have good rates for consumers trying to rebuild their credit.

2.  Add a secured credit card
Depending on your credit score, it may not be possible to get an unsecured credit card. In this case, a secured credit card where your deposit determines your credit limit is an great alternative. Secured credit cards have the same benefits as unsecured credit cards and report payment history to the credit bureaus.

A new secured card, the First Progress Platinum Secured MasterCard® credit card is fairly easy to get approved for as no credit history or minimum credit score is required. They also report monthly to the 3 major credit bureaus which can help build a good credit history with on-time payments.

3. Get a Retail Credit Card
Retail credit is typically easier to qualify for than other revolving credit options; however the interest rates may be slightly higher than credit card interest rates. You have to weigh the pros and cons and decide if a higher interest rate is worth it to build credit. Fingerhut is an established online retailer offering more than 20,000 name brand products from electronics to furniture. Are you pre-approved for Fingerhut Credit. Enter your name and address and find out now.

4. Authorized buyer credit
Family members with great credit can help you boost your credit scores with authorized buyer credit. A credit card company can allow an account holder to add you as an authorized user on an established account.

The account holder’s information, including payment history, account balance and credit limit becomes part of your credit history. Authorized user accounts can instantly improve your credit scores and offer those rebuilding credit an established account to add to their credit history.

5. Add an Installment Loan
Adding an installment loan such as an auto loan, personal, mortgage or even a student loan to your credit files will give your credit score a tremendous boost.  The credit scoring system rewards consumers who have a good credit mix and an installment loan will give you a good credit mix.

If your credit scores are less than perfect you may be required to make a down-payment. Another option would be USACarCash.com™. It is a service that provides free auto loan quotes without obligation from its Nationwide Network of qualified, hand selected dealerships to consumers with or without perfect credit.

A good option for an installment loan would be a short term, perhaps 3-4 years, personal loan. Quickly qualify for a personal loan, even with less than perfect credit. Apply online for a personal loan.

6. Request a Deletion for settled negative debts
If you pay a collection or settle a debt make sure you obtain a deletion and not a “paid collection” entry. This also applies to paying a debt directly to the creditor. Paid collection entries or settled accounts do not raise your score. See Get Deletions.

7. Decrease credit card balances
Amount of debt owed is 30% of your credit score which is significant when you are attempting to improve and rebuild your credit scores. Keep your credit balances within 30% or less of your total credit limit. Let’s say you have a credit card with a $5,000 limit and your balance is close to that $5,000 limit. Your credit scores are going to suffer because you have a high balance to limit ratio.

Decreasing your balance to 30% or less of your credit limit will increase your credit scores immediately. The great thing about this technique is that it works whether it is a $5000 limit credit card or a $500 limit credit card. Decreasing your account balances to 30% or less of your credit limit on accounts will instantly improve your credit scores.

Even better would be to reduce your credit card balances to 10% of your credit account limits. Your overall credit score will increase by keeping your balances within 10% of your credit account limits.

8. Retain old credit
Older credit is vital to credit scores, even if the account is inactive. A credit score contains five major elements: payment history (35%); amount of debt owed (30%); length of credit history (15%); mix of credit (10%) and new credit (10%). Maintaining older credit is vital to improving credit scores as credit history constitutes 15% of your overall credit score. Do not close older accounts, they show stability.

9. Limit the number of hard inquiries
Rebuilding credit involves adding positive credit to your files; however, once you are approved for a few new credit accounts stop seeking new credit. Hard credit inquiries can take between 5-10 points off your credit score. Limit the number of inquiries you have in a 12 month period and if possible, spread the inquiries among the three major credit bureaus.

Before applying for new credit try calling the credit card issuer, bank or lender and inquire as to which credit bureau or bureaus they pull your credit report from. Most lenders do not mind revealing that information. If you have a lot of inquiries on your Experian credit report then apply for lenders that use Equifax or Transunion instead.

10. Pay your obligations by the due date
Only add new credit if you are able to make timely payments. A late or missed payment can drop a good credit score by as much as 80 points or more. It may not make sense but if you already have negative entries on your credit report adding more will not hurt you as much as if you don’t have any negative entries. Regardless, paying on time can raise your credit score as payment history constitutes 35% of your credit score.

One Response to “How to Rebuild Credit Scores by using Credit Accounts”

1. Eric Beltman says:

   June 10, 2011 at 1:37 am

   I’ve been working on rebuilding my credit and getting a secured card helped me a lot, I still wish I someone could make me an authorized user on their account. It might speed up the process of getting better credit.