Low Score Got You Down? How to Establish or Rebuild Your Credit

I’m no credit expert, but I know there are plenty of wrong ways to go about trying to establish or rebuild your credit. We hear advertisements for these services on the radio all the time. You may even see ads for their services here on my blog (not my choice). With the help of the NFCC though, today I’d like to share some of the best (scam-free) tips for establishing or rebuilding your credit.

There are many good reasons to have a positive credit history. Scoring a good deal on a mortgage or auto loan are the first two that come to mind. Beyond that, it’s nice to have positive credit when applying for a job, an apartment, auto insurance, even cell phone service. It’s hard to escape the need for good credit in our lives. That being the case, you’ll want to put your best foot forward.

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Keep in mind, the following advice isn’t meant for those who find themselves stuck making poor choices with their credit. If you are totally clueless about credit and have trouble reeling in your spending, consider reading some Dave Ramsey.

Establish or Rebuild Your Credit

Here are some things you can do to establish or rebuild your credit:

Get Your Credit Report – You can get your credit report from many different places, but only one, annualcreditreport.com, is truly free. You can also get your free credit score online for free by using one of the credit monitoring free trials.

Open Checking and Savings Account – While not tracked on your credit report, lenders may ask about any checking or savings accounts you may have and use it to help your cause in lending decisions.

Aim for a Mix of Credit Account – Establishing different types of credit accounts, both installment (car loans) and revolving (credit card), can improve your credit score.

Consider Using a Co-Signer

“Obtaining a loan in the absence of any credit history can be difficult, sometimes requiring a co-signer to guarantee payment. The loan is usually structured where the primary borrower is expected to make the payment, with the pay history reported in both names. If the borrower defaults, the lender will approach the co-signer, and missed payments will be reflected on both credit files. There is somewhat of a risk to the co-signer, but if handled responsibly, co-signing can be an effective way to help another person obtain and build credit.”

Consider a Secure or Prepaid Credit Card – This is a credit card that is tied to a deposit you’ve made to the bank or credit union. In normal situations, if you a apply for a credit card with bad credit, consider that you might be rejected. No one is rejected for a secure or prepaid credit card application.

Take Out a Small Personal Loan – Hook up with a local credit union and open a small personal loan. Pay it off responsibly and look for your score to improve.

What Not to Do

As a bonus, here are some credit fixes that are no-no’s according to the NFCC:

  • Don’t Apply for Too Much Credit
  • Don’t Fall for the Credit Repair Schemes – Building your credit takes time and is hard work. There are no shortcuts.
  • Don’t Pay to Piggyback

The information in this post was provided by the NFCC. If you need financial advice, consider reaching out to an NFCC Member Agency at www.DebtAdvice.org

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Last Edited: June 11, 2011 @ 1:53 pm
About Philip Taylor

Philip Taylor, aka "PT", is a husband and father of two. He created PT Money back in 2007 to share his thoughts on money and to meet others passionate about managing their finances. All the content on this blog is original, and created or edited by PT. Read more about Philip Taylor, and be sure to connect with him on Twitter, Facebook, or view the Philip Taylor+ Google profile.