How to Build Credit with Bad Credit

How To Build Credit With Bad Credit
David Andrew
By: David Andrew
Updated: June 23, 2020
Our popular “How-To” series is for those who seek to improve their subprime credit rating. Our articles follow strict editorial guidelines.

When you have a bad credit score, it’s easy to feel trapped. The best way to improve your credit is by making on-time payments for a loan or credit card.

However, your low rating would prevent you from qualifying from most lines of credit, so you might not have any way to build up your score. What are you supposed to do?

Fortunately, there are a few simple ways to build up a credit rating, even when your score is already low.

1. Review your current credit score

Before you can go about fixing a problem, you need to identify what the problem actually is.

Order a copy of your credit report from one of the three major credit bureaus: Equifax, TransUnion, and Experian. This report will help explain your current credit score, the current outstanding debts and a description of why your score might be at its current level.

You’re entitled to a free report from each bureau once a year through, but it won’t provide you a credit score. To find yours, check out one of these excellent sites.

This will give you a pretty good idea of what needs to be fixed for the future, whether it’s missed payments, too much debt or something else.

2. Check for mistakes on your credit report

The credit bureaus sometimes make mistakes. Your credit report might include debts that have already been repaid or be missing positive information from a credit card you’ve been handling responsibly.

Make sure the report is completely up to date and doesn’t have any misinformation that is incorrectly dragging down your credit rating.

“Before you fix a problem, you need to

identify what the problem actually is.”

3. Avoid missed payments

Missing loan or credit payments devastates your credit score. If you are serious about getting a better rating, you can’t let this happen.

Write down the monthly deadlines for all your current loans and credit lines. Make sure you have plenty of reminders ahead of each one so you don’t forget any.

It might be a good idea to set up an automatic payment system from your bank account so you never miss monthly payments.

4. Pay off existing credit card debt

Part of your credit score is based on the amount of credit card debt you have that is outstanding. If your cards are nearly maxed out, this will hurt your credit rating.

Ideally, you should keep your credit card balance below 30 percent of your total credit limit. If you have a $5,000 credit card limit, you should try to pay your balance down to $1,500 or less to get a better score.

5. Apply for a secured credit card

If you don’t have any sort of credit card or loan to pay off, you can build credit with a secured credit card. These cards are designed for applicants with weak or no credit history.

To take out a secured credit card, you need to deposit money with the company issuing the card. In addition, these cards also charge a high interest rate and typically don’t offer rewards.

However, they will build up your credit score if you make your monthly payments on time. Once your score has improved, you can switch to a better credit card.

Don’t let a bad credit score drag down your lifestyle any longer. Follow these steps and soon you’ll upgrade to a much better credit rating.

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