The Restoration of Credit

Restoring bad credit is key if you plan on buying a house, financing a car or getting a low interest rate on a credit card. Credit scores can fall due to late payments, bankruptcy, repossession or foreclosure. But a low score isn't necessarily permanent. Explore ways to restore your credit and qualify for financing.

Carry Cash

Keeping cash in your wallet as opposed to credit cards can help with credit restoration. Carrying a credit card can increase the temptation to shop compulsively because plastic makes it easy to acquire material things. With cash, you're more inclined to save for purchases; and the cash-only method alleviates new charges on your credit card and helps to ultimately reduce your credit card balances. Low balances on credit cards helps raise your credit score.

Watch Your Report

Paying attention to your personal file is another way to restore your credit. Mistakes on your report can bring down your score, and lenders may reject your application for a mortgage or auto loan based on errors. For example, another creditor may submit wrong information to the bureaus such as chronic late payments or a collection account. Get your report from Annual Credit Report.com at least once a year, and look for any inaccurate information. Dispute inaccurate claims, and ask creditors to update your information.

Schedule Payments

Scheduling payments to creditors with automatic drafts from your bank or credit union helps avert late payments, which can lower your credit score and stop credit approvals. Payment history affects credit scoring by 35 percent, and a habit of sending in late payments or skipping payments can significantly lower your personal score. Start restoring your credit score by organizing your bills and using convenient payment methods (automated payments, online payment systems) to ensure payments arrive before the cut-off date.

Limit New Accounts

Apply for new credit accounts only when necessary to avoid reducing your credit rating. There is a connection between excessive credit inquiries and a drop in scoring: Credit inquiries impact scores by 10 percent, according to Myfico.com. Frequently applying for credit cards can damage your already low credit score and hinder your credit restoration efforts. Maintain your existing accounts, and avoid taking out new loans or credit cards.