How to Repair Bad Credit with Credit Cards

It may sound a bit counterintuitive, but the best way to repair bad credit is to keep using credit. If you have had setbacks, such as late payments, defaults or bankruptcy, the only way to win back the trust of creditors and improve your credit score is to reform your ways and show you can use credit responsibly. The best way to do this is through credit cards, because they are relatively easy to get, even for people with bad credit. And when you use them responsibly, they can go a long way toward repairing your bad credit.

Instructions

1

Get a credit card if you don't already have one. Even for people with a bad credit record, there are many options. Shop around on websites like bankrate.com for cards specifically marketed to people with bad credit. These cards will carry a high interest rate, and they may require you to put down a deposit to get a secured card. Another option is to have a trusted friend or relative add you as an authorized user on one of their credit cards.

2

Use the credit card for everyday purchases and pay the bill in full every month. Buy gas, groceries, medicines and household supplies--even consider paying your utility bills with your credit card. This is money you would have normally spent anyway, so set it aside and pay your credit card bill in full at the end of the month. Not only will it save you from interest charges, but it prevents you from building up balances you might have trouble paying later.

3

Pay your credit card bill on time. This is extremely important, as late payments can build up quickly, leading to more black marks on your credit report and lowering your credit score even further. Set up automatic payment through your bank if possible.

4

Pay down any existing balances as much as possible. A large portion of your credit score depends on your debt-to-available-credit ratio, meaning the higher your balances relative to your credit limit, the lower your score. Take care of any past-due amounts first to avoid the fees and interest and also to get these items removed form your credit report.

5

Keep accounts open. If credit cards are the reason your credit is impaired in the first place, it may be tempting to get rid of them once you pay off balances. But that would be a mistake. For one, it will lower your amount of available credit, and if you are carrying other balances, it may raise your debt-to-available-credit ratio above acceptable ratios. Also, closing accounts can negatively affect your credit history, especially if you have had the card for several years. If you don't trust yourself not to use the card, cut it up or give it to a trusted friend or relative for safekeeping.

6

Settle any accounts that have been sent to collections. Negotiate a settlement with the card company or collections agency and then get them to commit to remove the negative information from your credit report after they receive payment.