Ways to Re-Establish Your Credit

If you have had credit mishaps in the past, such as debt settlements, accounts in default, foreclosure or bankruptcy, your credit score has likely seen significant damage from these mistakes. In order to get credit in the future, you will need to work on re-establishing your credit history over a period of at least a few years.

Check Credit Report

After a credit mishap, one of the major things that could be holding you back from rebuilding your credit is having accounts reported incorrectly. Get copies of your credit reports from Experian, Equifax and TransUnion and review these reports to ensure that everything is correct. If you find errors, such as an account reported as past due when it was actually included in a bankruptcy, dispute these errors with the credit bureau that provided the report. Although you cannot change accurate negative information, getting rid of the inaccurate negative information will start you off on the right track.

Get Secured Credit Card

In order to re-establish credit, you will need to use credit. The best way to start doing this again is with a secured credit card, which is easier to get approved for than a traditional unsecured credit card. You will need to put down a deposit of the credit card company's minimum amount, usually $200 or $300, to get a secured card with a credit line of that same amount.

Use Credit Lightly

Start building up evidence of responsible credit habits by using your secured credit card lightly and regularly. Use the credit card for some of your everyday needs, such as groceries or gas, rather than getting in the habit of using credit for luxury items. Try to use no more than 30 percent of your credit limit each month. When the bill comes, pay the balance in full to avoid having to pay any interest charges. This process will help the portions of your credit score that consider your payment history and the amounts you owe.

Get an Installment Loan

In order to build an excellent credit score, you will need to have a few different credit accounts, including at least one installment loan. An installment loan is an amount you borrow upfront and make equal monthly payments on for a set amount of time. Mortgages, car loans and student loans are the most common types of installment loans. If you already have an installment loan, focus on making the payment on time each month and paying extra when you can to reduce the balance. If you do not have an installment loan, one option is to get a secured personal loan at a credit union. You deposit money in an account or buy a certificate of deposit, the bank lends you an equal amount of money and you repay it with interest. The interest rate is generally quite low because the bank holds your deposit as collateral.