Easy Steps To Rebuild Bad Credit

Why it's important to build (or re-build) a good credit history


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If you suffer from bad credit, you already know how hard it is to qualify for a car loan, qualify for a home loan, or get the best rates on your insurance premiums.

What you may not know is this: Your credit report may be costing you money. There are several ways to correct erroneous, outdated information that the credit bureaus have on file about you, and there are other ways to start building your good credit if you've never had good credit or even if you've experienced bruised credit in the past.

True, it is hard to get started getting credit if you have never had a need for credit in the past. I know many people who prefer to use cash all the time and avoid applying for credit at all costs. This does indeed prevent you from getting negative marks on your credit report, but it also limits your ability to buy things. You can only buy what your bank balance allows at this moment, so long-term major purchases will be a challenge for the majority of people who only use cash.

Responsible use of credit allows people to borrow money at reasonable terms and pay it back over a longer period of time, to allow them to buy a house or investment property today, live in it, and enjoy both a comfortable home and realize appreciation of real estate values, which over the past several years have tended to go up in most parts of the United States.

But getting credit is not always easy. It's odd, but true. It is easier to get credit if you have been a borrower in the past. So, with discipline and a steady plan, anyone can begin the process of qualifying for and having access to credit. Young adults will find it advantageous to build good credit now to qualify for student loans, a new home, a car to get them to and from their new career.

The sad truth is: without a credit history, people in the business of lending money are unsure how much risk they are taking on by giving you money today with only your promise of repaying it sometime in the future. Going it alone with any sort of credit history, a banker can’t tell if a person will pay his or her debts responsibly, or if that same person will "forget" to pay his/her bills ontime, or if they will get repaid at all. The ultimate goal in striving to build a good credit score is to prove that you are indeed "credit-worthy," and that a lender has assurance that since you were responsible with credit in the past, their is a very strong reason to believe that this creditworthiness will continue in the future.

You need to build credit if you do not have a credit history, and you need to re-build your credit if you've got negative marks in your credit files. The two things that will improve your credit score is (1) the passage of time, and (2) the practice of good credit habits -- that is, paying your bills and your debts as agreed.

Building or restoring credit is not all that hard. You can use a trusted co-signer to help get started on your initial accounts. Hopefully, your co-signer can also be a "credit mentor" who will help keep you honest and on track in repaying your debt. The co-signer, who basically tells the lender, "Yes, I know this person, and I stand behind the loan to ensure it will be repaid," is ultimately responsible for repaying the debt if you don't, so maintaining this relationship on good terms helps motivate most people to follow-through with the initial. Bankers know this, and usually allow this type of loan. This will not work on credit card accounts, but will help you get a car loan, or a personal loan from your local bank or credit union.

Another way to build good credit is to ask your bank or credit union about a secured credit card or secured personal loan. One way is to take the cash you may have planned to spend on a major purchase, like a truck or a washing machine, deposit the cash into an account at your bank, and arrange for a secured loan for 12-24 months. There's no risk to the bank, since you can't access the money until the loan is paid off; and if you fail to repay the loan, they simply "foreclose" on your savings account to get their money. I'd recommend applying for the loan before you make the deposit, though. You want to make the secured loan a condition of the deposit, and if the bank says no, you might be subjected to fees or account expenses that you could have avoided.

Although you probably won't get any interest on the loan while the bank holds it, you can always ask, maybe they will credit a small amount of interest while they have your money locked away as security for your loan. They may also have an "automatic payment" option, that would allow you to set up monthly drafts from this account automatically.

In this way, instead of spending all the cash at once, you are spending it a little at a time and slowly building up a good credit history.

It is important to work with lending institutions that report your loan acitivity to the three major credit bureaus, so that you will reap the rewards of going this route to improve your credit score. The objective, in the end, is to sacrifice a little bit of interest to start improving your credit or getting your credit established as soon as possible.

Another way that people used to be able to improve their own bad credit was to get added to their spouses' credit card as an authorized user. That is now no longer an option.

Summing up, take advantage of these simple ways to build your credit, and you will be positioning yourself to enjoy better credit offers in the future. Find more free credit repair tips at FindHow2.com. Use the new credit responsibly, and you will ultimately have ready access to cash and credit for investments, emergencies, and even convenience items in the near future, simply by getting your credit rating back in shape.

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