How to Reestablish Credit Using Credit Cards

By | April 1, 2013

As ironic as it sounds, the best way for someone to reestablish his or her credit is to get a credit card. This may seem counterproductive at first, but this is how it’s done. In order to establish a good credit score again it is crucial to get a credit card and use it carefully.

Pay Credit Card Bills on Time

The reason a person ends up with bad credit in the first place is usually because they got behind on their credit card payments. To reestablish credit they must then obtain a credit card that they can pay on time every month. Avoid accumulating debts for even small things such as library fines and medical bills because this makes it harder to rebuild good credit. Accounts that go a certain length of time without being paid will go to a collection agency. The debt will then end up on the person’s credit report for the next seven years. This means paying all bills, not just credit card bills, on time is crucial to restoring credit.

Change Credit Habits

A person will want to avoid falling back into the old habits that caused their credit score to drop in the first place. Rebuilding credit successfully requires using credit cards wisely and not charging purchases that will be hard to pay later on. Staying under the card’s credit limit is one way to start building good credit back up. It is always better to pay off an entire credit card bill in one month. Carrying a balance from month to month can be damaging to one’s credit score.

Carefully Choose a Credit Card Company

The pitfall that many people face when trying to rebuild their credit is falling prey to credit card companies that charge extremely high interest rates. Prepaid credit cards are also not recommended to anyone trying to reestablish his or her credit. The reason for this is that prepaid credit card companies do not send reports to credit bureaus.

Less Is More

When reestablishing credit it is never a good idea to have multiple cards at once. For most people, one or two cards are all they need to rebuild their credit. Juggling any more cards than that at once can lead a person right back to a bad credit score.

Get a Secured Credit Card

Many people get themselves a secured credit card when they are trying to reestablish their credit. A secured credit card is different because money must be put into an account in order to establish it. The money in the account acts as a security measure so that if the credit card bill is not paid by the cardholder, the amount they owe will be deducted from the account. It is usually possible to put in a bigger deposit in order to have more credit available on the card. Most secured credit cards require a deposit of between $300 and $500.

Following these steps will help an individual reestablish their credit as good.