Bad Credit Repair: Rebuild A Good Credit Score

The first thing you need to do, is get a copy of your credit report from each of the three major credit reporting bureaus.
You are entitled to free copies of your report, so you might as well get them and put them in a file. This will be the benchmark by which you measure the improvement in your credit history over time.

The purpose of this is not to check to see whether or not your bankruptcy is on the report - it will be.
The purpose of reviewing each report is to locate discrepancies or outright errors and get them corrected. I mean, your credit is already bad enough without adding entries to the report for things that you did not do.
Check your report over for discrepancies.

If you see any problems file a detailed report disputing the entry. The credit reporting agency has 30 days to present an answer to you or remove the item. If the credit reporting bureau decides not to remove the entry, they have to give you the option to place a statement in your file to explain or dispute the entry.

Take advantage of that right.

Most people set out to repair their credit with a new credit card. Unfortunately, most of the time it is the wrong card.

There is a proper and improper way to repair your credit . Using a credit card is one small part of your overall strategy. But the sad fact is that, the overwhelming majority of people are going to hurt their credit, not help it.

The correct way to use a credit card to repair your credit is not to use it.

If you are recovering from bankruptcy or bad credit in general you need to accept that you aren't going to get a good credit card at first. Initially, you will have a higher interest rate and fees.

As you begin to rebuild your credit, you will have opportunities to find lower interest rates.

In the meantime, you must weigh your options and pick the best of the worst credit cards that are available to you with your poor credit.

What About Using Unsecured Credit Cards To Rebuild Credit

The first mistake that people recovering from bad credit is to acquire one of those bad credit unsecured credit cards. Those credit card issuers are going to require you to pay front loaded fees in lieu of making you put up a deposit.

Expect to pay anywhere from $75 to $100 for your annual fee. Then, expect other up-front fees like a monthly maintenance fee, account processing fees and some even an application fee.

In the end, the upfront nonrefundable fees could be around $150, all to get a card that has a $300 credit limit.

A better option would be to obtain a secured credit card.

First of all, let's clear up the confusion between a secured credit card and a secured prepaid credit card.

A secured credit card is an actual credit card with a credit limit equal to the amount of the deposit. You get a statement each month and pay your bill just like a regular credit card.

A secured prepaid credit card acts more like a debit card. There is a fee for each transaction and another fee to load the card with more cash. There are sometimes annual fees and a variety of other charges.

Shop around and find the card with the least fees.

The prepaid card also is not your choice to rebuild credit. The issuer does not report the use of it to the credit bureau. However, it does have its place if you just need a credit card because you are in bankruptcy or your credit is so poor you can't even get a secured one.

Consider The Secured Credit Card Alternative

You already know you are going to have to pay high upfront fees to get an unsecured credit card with a ridiculous interest rate and very low credit limit. Note, that if the upfront fees are $100 and your credit limit is $300, you have already paid an effective interest rate of 33% -

BEFORE YOU EVEN CHARGED THE FIRST DIME.

If you know you are going to have high fees and a low credit limit; then, you should give serious thought to obtaining a secured credit card with lower rates and fees.

Sure, you have to put up a $300 deposit. You still have the same $300 limit and the money is yours. You can increase the credit limit by placing a larger deposit and this further strengthens your credit history.

Used correctly, a secured credit card will cost and act as a savings account for you. You can raise your credit limit by making additional deposits each month. So, the plan is to get your secured card, never use it, and make a $50 to $100 a month payment to that card for one year. If you do so, you will have a credit card with a $1500 credit limit and a $1,500.00 savings account as well.

This looks a lot better to someone who looks at your credit than a $300 limit. Loan officers and underwriters have no way of knowing whether a credit card on your credit report is secured or not, unless it has a $300 balance.

Think about it, having a secured card allows you to pay fewer fees, dictate your own credit limit, build a savings account and helps you to rebuild your credit.

This is definitely the best, and least expensive, way to go.

Using the wrong credit card, the wrong way, can actually hurt your credit rather than repair it.
Here are a few tips you should consider:

Never use a credit card that advertises "everyone is approved." These credit cards loaded with fees and do not offer you the chance to increase your credit limit. Often, you will end up with paying $100 in fees for a $300 credit limit.

Consider Secured Credit Cards. To repair your credit you must exercise some financial responsibility. Secured credit cards have much lower rates and fees. But, you do have to make an initial deposit. This deposit will be your new credit balance.

Increase Your Credit Line With Additional Deposits. If you select a secured credit card as a means to rebuild your credit, begin with a $300 deposit and make additional small monthly deposits to the account. This will allow you to increase the credit limit and create a savings account for yourself. As your credit limit rises so will the influence and credibility the credit card makes on your overall credit report.

Do Not Use Your New Credit Card For Anything. When the card arrives, cut it up immediately after you activate it. Pay the annual fee each year and forget about it. The variables on the credit report that influence and help to establish credit are, length of time the account has been open, the credit limit, the balance vs. the credit limit ratio and of course the payment history. Using the card does not rebuild your credit faster. You are trying to repair your credit. Debt is what got you into this mess in the first place.

Do Not Let Your Balance Exceed 50% Of Your Credit Limit. OK, you did not take my advice. So, if you use the credit card, do not let the balance exceed one-half of the limit. The credit card company will report this fact "Maxed" out credit cards are viewed as a liability to your credit score.

Get A Second Secured Card And Repeat The Steps. If you get a second card, AND DO NOT USE IT, you will now have two credit references with zero balances. Use a different bank for the second account so that you have more than one company making positive credit reports to the credit bureau.

Once you've reestablished revolving credit, it is time to take look at establishing installment credit such as a car loan or personal loan. This will be more difficult than establishing revolving credit, but it can be done even with bad credit.

Seek out small private banks in your area. Most banks will allow you to make a deposit and take out an installment loan against the deposit. This is called a secured signature loan. The interest rate is usually 2% above what the bank is paying you on the deposit. Simply make payments on this loan for more than 12 months and presto! You have established installment credit.

If you want to leverage this method, then make the deposit in Bank A (as set out above), take out a signature loan and deposit the loan proceeds into Bank B. Then take out a signature loan from Bank B and place it in Bank C. Take out a signature loan from Bank C and put the proceeds somewhere safe (like Bank A!!).

Make payments on all three loans (at least six months) then pay all of the loans off. When you actually apply for real credit later on, you will have three bank credit references that will show the loans as being paid "better than agreed." That is the best entry you can have on your credit report.

Nobody said repairing credit would be easy. It takes time and self discipline. However, if you work diligently and follow the steps outlined here, you can rebuild your credit history over time.