Rebuild Bad Credit and Tips to Improve Bad Credit History

Tips and Tricks to Help Rebuild Bad Credit

You apply for a credit card or a loan, and to your surprise, you get denied. Your lender tells you that it’s your credit that is stopping you, and you should rebuild bad credit and try again. You’re at a loss, and you have no idea where to go from this point. Your lender says that you should start by getting your credit reports and see what is wrong with them. They tell you that you can get them free once a year from Annual Credit Report, and you decide to start there.

You go and pull three of your credit reports and see that you do have a low score. You find accounts you had forgotten about, along with the payments you’ve been behind on. The next parts of this post will go over how to help rebuild bad credit. We will also touch on best credit cards for bad credit, along with credit cards for fair credit.

Assessing the Damage

Once you’ve pulled your credit reports and checked them over for errors, you can see how low your score is. There are five general categories for a credit score, and how low yours is will impact what you’re eligible for. Your FICO credit score will also determine how high your interest rate is on any credit lines you open. The lower your credit score is, the higher interest rates will be. These rates are higher because the lender you’re borrowing from sees you as a high-risk investment. They think that there is a very high chance you won’t pay back when you borrow from them. So, the higher your credit score, the better chance they have of getting their money back.

Listed below are the five categories for credit scores so you can see where you are.

Bad (300-579)
Fair (580-699)
Good (700-739)
Very Good (740-799)
Excellent (800-850)

Depending on where you are, you may have a long road ahead to rebuild your credit. There are credit cards for bad credit and credit cards for people with fair credit. Secured credit cards are also available, and you can use these to rebuild credit. We will touch on the steps you should take, as well as other ways to help rebuild bad credit. Things like small investment loans and developing healthy financial habits will assist you as well. You’ll have a good grasp of all your secured credit card questions, and where you have to start. You will know what you have to do to raise your score.

Catch up on Payments & Pay Everything on Time

Once you know where your credit score is, you can help rebuild bad credit by catching up on any overdue payments. If you can’t catch them all up, make payment arrangements. Make every payment on time, and pay more than the minimum payment if you can. Once you catch up, work on the payments on your credit report. If the accounts are in collections, call the creditors and work out payment plans. You might also be able to get a deal that they’ll remove the collections account if you pay it in full. It pays to take the initiative and call about arrangements. Going forward, if you don’t miss or are late on your payments, your lenders will look at this in a positive light. A good payment history leads to more favorable loan terms, as well as you will be eligible for higher credit lines.

If you’re behind on student loans, ask about loan rehabilitation. Loan rehab is an agreement you set up with the lender, and you make so many on time payments. Once you have made these payments, they wipe out your missed payment history and return your loan to good standing. Getting any late payments removed will push your credit score up. However, if you miss a payment, it’ll go back to its previous state. You can only attempt loan repair once per loan. So if you’re going to attempt it, make sure you have the money to be successful.

Concerned couple looking over bills working to help rebuild bad credit.

Build Your Credit with Credit Cards

An easy way to help build bad credit is with a credit card. There are cards for bad credit available for the sole purpose of helping to rebuild credit. If you do your research, you may be able to find credit rebuilding credit cards with no deposit. Keep in mind that if you have bad or low credit, your credit card options will be limited. However, a gas credit card is also an option, and this will get you started on the rebuilding process.

Best Credit Cards to Rebuild Bad Credit

The Credit One Visa is a good example of this type of card. Another good choice for rebuilding your credit is the Milestone® Gold MasterCard®. If you’re approved, only spend what you can pay off at the end of the month. This is a way to practice good spending habits. If you make each payment on time, this will reflect positively on your credit report’s payment history.

Another option to help rebuild bad credit are secured credit cards for bad credit. These secure credit cards for bad credit work by you paying a deposit and that is your credit line. It is usually around a $300 line. If you pay on time for several months, you may be eligible for a higher credit line. These are excellent cards to rebuild credit, and you are almost guaranteed approval. The Capital One® Secured MasterCard® and the primor® Secured MasterCard Gold Card are decent options to get. They take the fear out of overspending because you know exactly what your limit is.

Apply for an Installment Loan to help rebuild bad credit

Once you’ve got one or two credit building credit cards to help rebuild bad credit, it’s time to move forward. The next step is to apply for a small, short-term installment loan. Credit cards that build credit will only do so much, and a small installment loan is another type of account.

Credit cards are an example of what is known as rotating or revolving accounts. A loan, on the other hand, is an example of an installment account. Different account types factor into your credit score, so by having both of these, you have more lines of credit. Having multiple credit card accounts or credit mix looks favorable to lenders, and they’ll be more likely to work with you. Be very careful with this step, as you don’t want to apply for too many loans at once. Multiple loan applications will result in hard inquiries, and this can drop your score a few points each time.

Try a Credit Builder Loan to Rebuild Bad Credit

To start out, get approved for a loan with low interest. As you are still building your credit, your interest rate might be higher. It’s a good idea to take out a small loan or credit builder loan and pay it back quickly. If you’re able to do this several times, do it. Small loans are an easy way to boost your credit score and balance out your payment history. This will build your positive payment history, as well as a different account type history. These accounts combined with a good payment history of your bad credit credit cards will help rebuild bad credit.

Develop & Use Good Credit Habits

Why no credit score change? Rebuilding your credit isn’t an instant process. It isn’t unusual to wait two to three months to see any marked improvement in your credit score. The length of time it takes to fix your credit mostly depends on how bad your score when you start. If your score is very low, it can take two to three years to see improvement.

To top it off, you’ll only see your scores go up if you keep steadily working at it. If you backslide, your score will show it, and you’ll have to work harder. If you’ve been overspending and living outside of your means, break this habit. It’s a good idea to develop a budget and stick to it. A budget will help you track where your money goes each month, and you’ll be able to see when you’re overspending. These financial habits you adopt will help rebuild bad credit quicker.

Consider Starting an Emergency Fund

If you’re able to, set aside money for an emergency fund or the future. An emergency fund will also give you the peace of mind of knowing you have something to fall back on. Just knowing you have money available if you need it will make you less likely to skip payments. The more you use these healthy financial practices, the easier it will become to be your new normal. These practices are also more liable to stick with you once you have credit established. If they do, you’ll be less likely to dig yourself back into a financial hole.

Monica Kowollik

Director at CreditFast.com
Monica has covered credit card and personal finance news for over 15 years. From an early age, she developed an interest in financial literacy and saving money. Monica hopes to help others to improve their personal finances one article at a time.