Rebuild credit in 2013 by rebuilding your credit history. A history of bad credit must be replaced with a good credit history and this is the best way to rebuild credit in 2013.
You can do this by adding positive credit, deleting negative credit items, paying bills on time and disputing errors in each of your major credit reports from Experian, Equifax and Transunion.
Once you start to rebuild credit history your credit scores will improve. The amount of time it takes to rebuild credit depends on the amount of negative credit items in your reports and how determined you are to stick with the process.
You can expect to see a difference in credit scores within 60 to 90 days; but keep in mind, some stubborn credit items may take several months to improve.
When determining what items in your credit history are affecting your credit score the most look for current derogatory information like a charge-off, collection account or late payments. Any current major derogatory may significantly lower your credit score. If there is an error in the listing such as an incorrect date or amount, that can be disputed.
You may want to consider leaving older negative information to drop off your credit reports. Older negative information affects your credit score less than newer negative credit information. The credit scoring model gives more weight to accounts that are recently negative. The older the negative account, the less it counts in calculating your credit score.
Articles on how to repair credit and disputing negative credit contain useful tips on dealing with specific bad credit items. If you need to deal with collection accounts learn how to get deletions with a pay for delete letter or learn the best way to dispute collection accounts.
On time payment is the most important piece of the credit score pie! You may already be familiar with the credit score chart but it’s worth showing you again. Take a look at the amount of weight given to payment history, it accounts for 35% of your credit score. Even though FICO says there is no single formula that determines a credit score, the five categories on the chart are strongly considered when establishing a credit score.
A late payment can reduce a credit score by as much as 100 points! What’s really awful about late payments is that items that are normally not listed as part of credit history can end up on your credit reports. A ticket, library fine or even utility bill can find its way to a credit report if left unpaid. Avoid unpaid bills, even if they are small, being sent to a collection agency.
The good news about late payments is that you can get back on track fairly quickly after a late payment. Within 30 to 60 days your score can quickly bounce back. However, do not allow your payments to get past 90 days or more overdue; when that occurs, it can damage your credit score and may lead to a charge-off and debt collection.
Once a bill ends up with a debt collector it can remain on your credit report for 7 years, whether it is paid or unpaid. A paid collection account is still considered a negative account.
Any outstanding credit card debt should be decreased. You will get the best results in rebuilding credit if you maintain current account balances to no more than 10% of your available credit limit. for example: A credit card with an available credit limit of $2,000 should have a balance of no more than $200 which is 10% of $2,000.
The credit limit of the account does not matter; this rule should be practiced even if your account limit is $200. Try it and watch your credit score increase. Maintaining low balances translates into higher scores and shows how well you manage credit card debt.
Consumers who manage credit well and have little debt are considered a good risk and banks will come looking for your business. If 10% is too difficult to maintain aim for 30% of your available credit limit.
Replacing bad credit with good credit is mandatory! The previous tip to “minimize account balances” will not work too well if you have no current open credit card accounts. You may be thinking how can I get new credit if I have bad credit or no credit at all? Well, I’ve got the solution.
Get a credit card specifically designed for consumers who need to rebuild credit. The Cerulean Credit Card is a fairly easy credit card to qualify for and can help rebuild credit if managed correctly. A credit account like the Fingerhut Credit Account is also easy to get and designed for consumers looking to build or rebuild credit history.
Secured credit cards are also an option. USAA Bank offers a great secured credit card that reports monthly to the credit bureaus. It works just the same as unsecured credit with the exception of you placing a deposit, typically from $200 up to $5,000 in an FDIC insured bank account. That deposit not only serves as your credit limit but also reduces the risk to the credit card company.
Exercise caution when seeking new credit. You want to avoid too many credit applications as each inquiry will decrease your credit score by a few points and banks will view you as a risk because credit applications indicate you may be taking on too much debt.
The goal is to rebuild credit history and prepaid cards in no way help rebuild, build or re-establish your credit history. Prepaid cards are not credit cards and do not report to the credit bureaus as they do not provide a line of credit. You are strictly dealing with money you prepaid on the card.
Fees are another reason to avoid prepaid cards. A 2012 study on prepaid cards found that they carry “significant risks,” including lots of undisclosed fees, according to the Pew Charitable Trust. They reviewed 52 cards that represent 75% of the market. In 2009, consumers loaded $28.6 billion on to prepaid cards. In 2013, consumers are expected to load $201.9 billion onto the cards, according to the report.
Maybe your credit history is not in need of rebuilding and you just want to quickly improve your credit scores. The first thing you can do is keep any old credit accounts open. You may not be using that old account but it is helping your credit score and closing it may lower your credit score.
The second thing you could do is to ask your creditor to remove any recent late payments. I am not talking about disputing with the credit bureaus. Go directly to a creditor and simply ask for a removal of a recent late payment. Your creditor may want to extend goodwill to you if a late payment was a mistake and not consistent with your regular payment habits. Recent late payment notations can sink your credit score. Get more tips on how to raise credit scores quickly.
Okay, now that you have new credit what should you do with it? The answer is simple. Practice good credit habits to rebuild credit. Your goal in rebuilding credit should be to have credit score of 720 or above. Some of you may be 50 points away from a 720 credit score and others may be 150 points away. It does not matter where you start, it’s where you end up that counts.
Some consumers cease using credit cards after having bad credit or a bad financial experience, but that will not help you rebuild credit. Creditors want to see how well you manage credit and you can only accomplish this by using credit. Charge only what you can afford to pay and make sure you pay on time each month and your credit history will recover.
For specific creditors that cater to bad credit consumers read “Easy Approval Credit Cards”