Establishing or rebuilding credit

Know that building your credit takes time. If you see a “get-there-quick” plan to improve your credit, it may be (at best) an unproven technique that’s likely to backfire. Making arrangements with a company that promises to settle your debt can damage your credit rating for up to seven years. And at worst, it could be a scam.

Establishing credit

One of the most common ways to establish credit is with what’s known as a secured card. Secured cards are like standard credit cards, but the limit is determined by a security deposit. For example, if your security deposit is $500, your credit limit will be $500. Many secured cards won’t require an established credit history, and many will report your payment history (both on-time and late payments) to the three major credit bureaus, so that the card is part of your credit report.

Rebuilding credit and your credit score

Once your credit is established, you may later find that your credit score is not as high as you need it to be. Regardless of your previous credit history, there is usually a way to raise your credit score.

Your credit score is determined based on many factors, including many types of credit and loan accounts and how you maintain them. Credit cards, retail store cards, and loans all affect your credit score. Some of the factors that determine your credit score are payment history, utilization, length of credit history, recent activity, and overall capacity.

Credit pitfalls

Keeping a good financial history and paying your bills on-time are the basic principles to good credit. There are other things that can negatively impact your credit score, including:

  • Applying for and opening several credit cards at once – it may be tempting to open multiple credit cards to increase your overall credit, but opening or applying for several cards at once may reflect poorly on your credit report.
  • Closing unused credit cards – even if it seems smart to close cards that you don’t use, this will impact your credit as you will decrease your credit available and increase your utilization of credit.
  • Using excess credit – using more than 40% of a revolving line of credit can also lower your credit score. It’s best to keep your credit cards at 35% of your total credit line.

Legal information and Disclosures

For information purposes only and is not considered legal advice.