How to Build Credit When You Have Bad Credit

You can get new credit even while your credit is bad.

Rebuild your credit by opening new accounts even while you work to heal past credit problems. Getting new credit after your credit scores have plummeted won't be easy, but there are some options available to you. Engaging in ethical do-it-yourself credit repair will help you recover from your credit setback, but it will require considerable time and patience.

Instructions

1. Order a copy of your credit report. The website Annual Credit Report is the only site authorized by the Federal Trade Commission to offer free credit reports to consumers. Other sites may try to lure you with the promise of free reports but then will offer to sell you other services. The Annual Credit Report site will never ask you for money. Visit the site and click on "Request Report" to order.

2. Challenge any inaccurate information on your credit report by writing letters to the three credit bureaus -- TransUnion, Experian and Equifax. You may find that a delinquent account listed on your report does not belong to you. Having it removed could boost your credit score, and federal law requires the credit bureaus to erase any inaccurate information within about 30 days after you dispute it. Clearing your credit reports of inaccuracies will be important as you start to seek new credit and rebuild.

   Equifax
   P.O. Box 740241
   Atlanta, GA 30374-0241
   800-685-1111

   Experian
   P.O. Box 2104
   Allen, TX 75013
   888-397-3742

   TransUnion
   P.O. Box 1000
   Chester, PA 19022
   800-916-8800

3. Address other issues on your credit reports such as judgments, liens or credit accounts that have been sold to collection agencies. You may still be able to get new credit even with these red flags, but continue to follow a two-pronged strategy as you simultaneously clean up your existing credit while adding fresh new lines of credit.

4. Seek new credit by applying for department store credit cards, gas station cards or unsecured bank credit cards. Try adding say, two or three new accounts over the course of a year, and then repeat the following year. Department store and gas station cards are generally the easiest credit cards to obtain, while unsecured bank cards are tougher. Unsecured cards, gas station and department store cards may not be an option at all if your credit is really bad. Go on to the next step if that''s the case.

5. Apply for secured credit cards. Unsecured cards do not require any collateral, but secured cards do. The card company will require you to place money in a bank savings account, and it will be held while the account is active. The amount on deposit becomes your credit line. The collateral eliminates much of the risk for the bank and makes the cards easier to qualify for. Ask about secured cards at your bank or credit union or visit other bank websites to get applications.

6. Continue cleaning up your past credit problems while growing the new credit lines. Don't compound your problems by maxing out the new cards. Stay well under the credit limit and never, ever, miss a payment. Generally, credit scores gradually rise as you make consistent payments on all of your accounts over 12 to 24 months. After that period of time, your payment history on your new credit may start to erase some of the damage done by your old credit.

References

• Annual Credit Report: Request Report
• Federal Trade Commission: Getting Credit
• Bankrate.com 10 Questions About Secured Credit Cards