People often associate credit cards with debt. But having credit cards does not mean you have to take on debt. The truth is you need current, active credit accounts in order to rebuild credit history. Having nothing but negative credit reporting to the bureaus will not help credit scores.
To rebuild credit you need positive credit reporting to the credit bureaus monthly. You can accomplish this by opening a few new credit cards. Keep in mind if your credit score is low the interest rate might be high. But if you pay off the balance each month, you won’t be paying interest each month so the high APR won’t affect your bottom line.
Whether you obtain a traditional credit card or a secured credit card it is important to keep low balances or pay off your balance each month. However you choose to approach rebuilding credit – NEVER MISS A PAYMENT!
Easy way to rebuild credit history without taking on debt
- Open three new credit cards. Your FICO score may take a hit from the hard inquiries but it will recover. In fact after 12 months hard inquiries do not work against your score.
- Use the credit cards to purchase things you would normally use cash for such as gas, groceries or lunch.
- Pay off two of the credit cards in full each month before the due date.
- With the third credit card keep a low balance. For instance, if your credit limit is $1000 maintain a balance of $100. But you really don’t have to maintain a 10% balance. In order to gain the most points from credit utilization you just need one credit card to report a low balance. That balance could be $10 bucks, as long as it is not $0! The reason you need a little debt reporting is that the FICO scoring formula takes away points if you are showing no usage whatsoever.
It could take up to 6 months to re-establish your credit history. As time passes and you continue to use your credit cards responsibly and pay all your obligations on time, you will see your FICO score rise. As your FICO score gets into higher ranges, more credit may become available to you and at better terms.
Make a habit of keeping tabs on your FICO score while you are rebuilding a credit history. You’d be surprised at how many people only check on their credit when making a major purchase. If there’s a problem, finding out just before a purchase doesn’t leave much time to fix the problem. Just remember the FICO score is what matters most. You can obtain your FICO scores from myfico.com. Sites like CreditKarma give you an idea of your credit score but it is not the true FICO score that 90% of lenders use.
Find some easy to get credit cards here.