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Credit Repair Drill

Credit Repair Drill

Putting your credit pieces back together

How to Establish Credit

How to establish credit when you have no credit

Have you have found yourself in a situation where a creditor says to you, "Sorry, we can't offer you credit or approve your application because you have no credit history". It's the same thing as saying we can't offer you a job because you have no previous experience. The question is, "how can I get previous experience if you won't offer me a job" and how can I get a credit history if no one will approve my credit application.

Don't despair, there are things you can do to get yourself on the path to establishing credit. Building a credit history takes time, there is no magic wand to change things overnight. Doing the right things and paying your bill on time month by month, will translate into a positive credit history.

Get a secured credit card

If you can't qualify for a regular credit card, try a secured credit card. Many banks and credit unions offer secured credit cards. Unlike a normal credit card where your credit limit is assigned to you based on risk, with secured credit cards, you will have to put down money in the form of a bank deposit into your account. With most of these cards, your credit limit is equal to the amount of money you have in an account as a deposit. Since you are borrowing against your own money, lenders are more willing to approve an applicant with a low credit score. You can use secured credit cards just like an unsecured credit card, to make purchases and make regular payments. Just beware, fees and interest rates can be high for secured cards, but using one can help you to establish a credit record.

It's important to make sure your secured credit card company reports to the three major credit bureaus – Equifax, Experian and TransUnion, that way your excellent payment history is helping your credit score improve.

After establishing a history of using your secured credit card responsibly, by paying on time and not going over the limit, your lender is likely to upgrade your card to a regular (unsecured) credit card with a higher limit.

A secured credit card isn't a guarantee for better credit, but with disciplined use it can be a helpful tool in establishing or repairing your credit. By making on-time payments and paying the balance in full each month, you'll show your responsibility level and credit worthiness to the card issuer and the credit reporting agencies.

Obtain a secured loan

A secured loan allows you to borrow money against your savings account. Open a savings account at a local Credit union or Bank. Save on a regular basis $20.00 a week for about 6 months. Then ask for a small secured loan or line of credit of about $500 - $1,000 and put that money in your account. Remember this money does not belong to you and has to be paid back. Pay the debt out of the account. Make the minimum payments and remember never pay late. If you feel you might forget to make the payments, have the bank setup a direct debit from your account. When the loan is 75 percent paid, then send in a check for the balance to pay it off a little early. By making the regular payments to the bank on time you're building good credit.

Apply Self Discipline

Remember when trying to establish credit, responsible credit habits is what you need. During this period do not apply for any credit cards. Resist the temptation to apply for that store card because you want that free handbag that comes with the credit application. Remember whenever you apply for credit, the lender looks into your credit file, and you get what's called a "hard Inquiry". If you have a lot of hard inquiries it looks bad and lowers your credit score.

Just make sure every bank or creditor you deal with reports to the Credit Bureau. If you are not sure if they do, just ask. And if they don't, just find another creditor.

Once you follow these steps, it's just a matter of time before you start building credit. Remember one of the key factors in your credit score is the length of time your accounts have been established. Another is your payment history, which is why it is so important to always pay on time. The most important thing is to be responsible and use credit wisely. Never, ever, ever borrow more than you can afford to pay back, otherwise, you can get in deep trouble really fast and not be able to get out.

How can I add favorable information to my credit report?

When you're trying to build a good credit history, don't forget to take credit where credit is due. The Fair Credit Report Act allows you to add information to your report when the absence of any information could lead to the denial of requested credit. The credit reporting agency may charge a small fee for this service.

If your credit history has little or no entries to show your creditworthiness, consider adding unreported repaid debts utility payments, and rent payments. Send a certified letter to the credit bureau asking that they contact the creditor and ask for approval to list the account.

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Excellent Credit: 800+

Good Credit: 740-799

Fair Credit: 670-739

Poor Credit: 580-669

Bad Credit: below 579
Tip of the day!

Rebuilding it takes time. There are no shortcuts or secrets.