Rebuilding Bad Credit

Credit Cards

Accruing significant credit card debt is an easy way to ruin your credit score if you're unable to pay it off on time--or if you keep a balance on your card that's more than half of your credit limit. Thus, tackling this bad credit is the first thing you can do to rebuild your credit. If you only rely on one or two credit cards, applying for a third or fourth card that has a low introductory offer can be an option if you can qualify. You could then spread out the balance between your cards, putting the majority of it on the cards with the lowest APR (Annual Percentage Rate) or with a low balance transfer fee. (Be careful to check when these lower rates expire; often they soar when the introductory period ends.) Also, close any credit cards that you no longer use. Even though your credit score may take a slight hit for closing a card, it's also taking a slight hit when the card remains inactive for more than 6 months or, again, when you're unable to pay the balance. If you don't have much credit card debt, apply for a credit card in order to prioritize your other debts and keep you afloat month to month.

Saving

Review your bank statements from the past 3 months. Eliminate frivolous expenses like eating out and see which other expenses, such as cable television, cell phone plans and gym memberships, you can eliminate or reduce by signing up with a competitor. Once your spending habits are scaled back, keep track of every dime you spend. At the end of every month, determine what expenses could have been reduced or eliminated, and put those strategies to use the following month. Though these habits won't in themselves help you rebuild credit, the money you're saving by living more within your means can be put toward outstanding debts and, eventually, into a savings account.

Tackling Bills

Make paying your bills a priority. Try to get all of your fixed monthly expenses paid before you do anything else with your paycheck. For large outstanding debts, call your credit card company, mortgage company or other lender and explain your financial situation. Emphasize that you're serious about paying off these bills and that you're willing to work with the company on a payment plan that will get the loan current and keep you paying on time. In the future, make a habit of contacting any creditor when, and even before, you fall behind. Proving that you're a responsible, diligent person allows creditors to work with you. Finally, monitor your credit score. Many credit card companies will allow you to access your FICO score monthly, and the three main credit bureaus--TransUnion, Equifax and Experian--allow consumers to check their credit scores once a year. If done correctly, an individual could check his credit score for free every 4 months.