How to Establish Credit & Repair Bad Credit

Good credit is essential to achieving financial stability. Your credit can affect your ability to obtain loans and determines your interest rate. Establishing credit takes time. Consumers with no credit and bad credit are usually grouped into the same category. The process for repairing credit is similar to the steps you would need to take to establish credit. With patience and discipline, you can establish or repair your credit.

Instructions

1

Obtain your credit report to access your credit situation. Under the Fair Credit Reporting Act, you are entitled to a free copy of your credit each year. Visit Annual Credit Report to order your report from Equifax, Experian and Trans Union.

2

Check your credit report for inaccuracies. If there are any errors or discrepancies, you will need to file a dispute with the credit bureau. Monitoring your credit report can help you maintain your credit.

3

Settle debt directly with the creditors. If you want to clean up your credit report, you can negotiate a settlement with the creditor. Avoid paying third parties or collection agencies. Request the creditor send a letter agreeing to remove the debt from your report once paid as agreed.

4

Apply for a credit card. Avoid applying for multiple credit cards at once. Too many inquiries will lower your score. There are credit cards specifically for people with no credit or bad credit. You can expect to start with a lower credit limit and higher interest rate.

5

Ask someone to co-sign if you cannot get approved for a credit card or other line of credit. Sometimes creditors are not willing to risk extending credit to someone with no credit or bad credit. Having a co-signer with adequate credit back your credit account secures the lender and helps you build your credit.

6

Make all credit card payments on time. Your payment history accounts for 35 percent of your credit score, according to My FICO. If you want to avoid costly interest charges, pay your balance in full each month. By paying the total balance you will show good credit utilization, which is 30 percent of your score.

7

Apply for an additional line of credit. Your credit score is also affected by the type of credit you have. Too many credit cards may lower a score. Aim for a mixture of credit cards, installment loans and revolving accounts. Continue making timely payments on all accounts. Older accounts appear better on a credit report than newer lines of credit. Consistency is important.