Whether you want to buy a home, get a student loan, apply for a credit card or even apply for a new job, having solid credit is important. Simple choices, like paying bills on time and diversifying your accounts, can help resuscitate your credit score no matter what shape it’s in. In particular, a secured credit card can help you build a positive credit history if you’re having trouble getting approved for loans or cards.

Follow these steps to get back on track:

  1. Assess the Situation
  2. Understand Your Credit Utilization Ratio
  3. Apply for a Secured Credit Card
  4. Avoid Missed Payments
  5. Establish Diverse Credit

1. Assess the Situation

It’s all too easy to toss bills aside and ignore your debt problems. But the first (and most important) step to financial responsibility is facing the facts. Request your free annual credit report online from the three major agencies (you’re entitled by law to one per year from each). Compare the reports and note any discrepancies or errors.

2. Understand Your Credit Utilization Ratio

Once you’ve identified all your open lines of credit, determine your credit utilization ratio on each card. Take your current credit card balance and divide it by your credit limit, then multiply that number by 100. If you owe $1,000 on a card with a $10,000 limit, your credit utilization ratio is 10 percent.

High credit utilization ratios may have a negative impact on your credit score. You might consider the goal to have under 25 percent utilization on every line of credit in your name. If one of your credit lines has a 90 percent utilization rate and others are much lower, you could focus on paying down the one with a high utilization rate first (assuming all lines have a similar interest rate).

3. Apply for a Secured Credit Card

Sometimes past mistakes can keep you from building a positive credit history with regular credit cards. In this instance you can consider a secured credit card. With a secured card, you deposit an amount of money up front as a form of collateral to the lender. As you use the card and make regular, on-time payments each month you can establish a better credit record. When choosing a secured credit card be sure the company reports to each of the major credit bureaus.

4. Avoid Missed Payments

Payment history is an important factor in your credit score, so do your very best to not miss payments on any existing or new debt. Utilize your lender’s online reminders and consider setting up automatic payments if you have a set amount budgeted for debt repayment each month.

If you’re in a real bind with making a payment, make sure to make at least the minimum payment due or contact your financial institution and talk with them about the possibility of extending the due date. While it is important to not miss payments, avoid borrowing from high-interest lenders as this may ultimately compound your debt problems rather than resolving them.

Understand that finally paying off a debt does not remove the payment history from your credit record. When you pay off a debt, keeping the credit line open can demonstrate long-term responsible use (but maybe stash the card in a drawer if you do not want to use it).

5. Establish Diverse Credit

Once you’ve gotten a handle on responsible spending habits and given your credit score a boost, consider diversifying your credit accounts. Switch or “graduate” from a secured to an unsecured credit card and apply for a car loan, if you need one. Demonstrating your ability to manage different types of credit can have a positive effect on your score.

That said, avoid opening multiple lines of credit all at the same time. Each time you apply for a line of credit, it creates a “new credit inquiry” on your credit file and too many of these in a short period can have a negative impact on your credit score. Keep this in mind, for example, with multiple store credit cards at each place you shop frequently.

Rebuilding your credit takes time and dedication. Most credit reports go back seven years, so it can take a long time to make major improvements to your score. But, by requesting your credit reports today and following these steps, you can stop letting bad credit hold you back from your goals and dreams.

Published February 13, 2015

Updated January 5, 2021

Builds credit with responsible use:: Discover reports your credit history to the three major credit bureaus so it can help build your credit if used responsibly. Late payments, delinquencies or other derogatory activity with your credit card accounts and loans may adversely impact your ability to build credit.

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