Good Ways to Rebuild Your Credit

A financial disaster that destroys your credit rating might make you sheepish about using credit again. This is an example of the wrong way to rebuild your financial profile. The best way to rebuild credit involves obtaining a new credit account and avoiding your past mistakes.

Misconception

Never using credit again because you messed up your credit rating before won't do any good and may even lower your score, because it does not build new history on your report, according to Liz Weston of MSN Money Central. Opening a new account and showing lenders that you know how to responsibly handle a line of credit is the only sure-fire way to rebuild your credit history.

New Accounts

Assuming you have a terrible credit score -- below 620 -- you will probably need to apply for a credit card that has the lowest lending standards. Secured accounts and department stores usually meet this qualification. Ideally, you only want to apply for and use these kinds of accounts until you qualify for a traditional, unsecured credit card from a national bank. Store cards and secured accounts usually come with high fees and interest rates. In the case of a secured credit card, the bank requires a deposit on the entire limit.

Should You Pay Old Debts?

Borrowers with poor credit histories tend to have collect accounts or other unpaid debts. Paying these usually do not affect your credit. Repaying a charge-off account with the original lender could give your score a slight boost because the debt still counts against your total debt balance. However, paying old debts impresses future lenders, because it shows you have a willingness and desire to repay debts of any age or amount.

Tip

Credit repair clinics rarely offer good ways to rebuild your credit. More than likely this type of company will charge ridiculous fees for telling you to repay debts on time and other free information or offering illegal advice, such as faking a Social Security number. As long as you build positive payment history and do not carry credit card debt, you will eventually obtain a good credit score. Also, review your credit report. Slight errors in the credit bureau's databases can negatively affect you, such as the delinquency dates of a debts.