Rebuilding Bad Credit

1. How to add positive credit to your credit report.

Even if you have remaining blemishes on your credit report, you can offset those blemishes by adding positive credit to your report. You can have an "A" credit rating again within a year or two, even if you just came out of bankruptcy, by taking the following affirmative steps:

1. Creating positive credit: If you have an excellent credit history with some creditors who are not reflected on your credit report you may be able to add them. There is no clear-cut law on this; however, usually for $2 or $3 per creditor you can have that information added to your file. Remember to get the creditor to agree to this first.
2. Get a Visa and/or MasterCard: A Visa and/or MasterCard is probably the best credit reference you can have. Therefore, it is important to get one of these cards and make regular steady payments to improve your credit rating. If too many negative marks remain on your credit report, or your income is less than $1,000 a month, you can still get a secured version of one of these cards. These are debit cards where you deposit a certain amount with them as security for your purchases. These cards are excellent ways to re-build your credit rating and are virtually as effective at bolstering your credit as an unsecured card.

   Remember, however, to review the terms of a card before you apply for it. Such relevant terms are annual fee, low APR, surcharges, and length of the grace period.

3. Retail store cards: Also somewhat effective at rebuilding credit are department store credit cards. They are usually relatively easy to get, especially if you already have a Visa or MasterCard. Remember, your credit rating will improve faster (especially for Visa and MasterCard) if you keep a running balance each month rather than paying off the entire amount.
4. Entertainment and travel cards: Cards such as Carte Blanche and American Express which require you to pay off the balance each month are not great credit builders since they are not considered as strong indicators of how well you handle debt.
5. Mortgages and auto loans: Mortgages tend not to improve your credit rating tremendously since they are secured.
6. Savings and checking accounts: Having a checking account with a good payment history is factored heavily in your rating, as is a savings account.
7. Employment: Your position and length of employment at a particular job are factors commonly looked to in making credit decisions.
8. Other credit cards: Make sure that the card company reports that you are making your payments on time. Gasoline cards and mortgage companies often do not bother reporting unless you are delinquent in your payments.
9. Co-signing: If your credit is really checkered, you may need to get someone to co-sign for you. This means that if you are unable to pay back the loan, the co-signer is legally responsible for paying it back. This also means that any negative information that arises out of the co-signed debt will adversely impact both the co-signer's credit and your credit. However, by having someone with good credit co-sign for you, you may qualify for much better credit than on your own, thereby expediting your credit’s repair.
10. Borrow credit: By becoming an "authorized user" of someone’s credit card, you can in effect borrow someone’s credit history. Find a friend or family member that is willing to contact their credit card company and make you an authorized user. Of course, make sure to pick a person with a good credit history on that particular card. If the person who is allowing you to be an authorized user is less than enthusiastic about the arrangement, you can give him the credit card when you receive it. In other words, for this system to improve your credit, you really do not have to do anything except piggy-back on the other person’s past and continued good payment history. The most obvious danger here is if the person starts to neglect paying his account.
11. Running balance: It is best to keep a small running balance on your cards while rebuilding your credit, rather than paying them off in full each month. Although it will cost you some interest payments, it shows an ability to manage debt.
12. Manufacture positive credit: The following technique is a powerful and effective way to dramatically speed up the positive evolution of your credit. It takes a small amount of seed money but may be well worth it if you're interested in returning to an "A" credit rating (see below).

2. How can I dramatically improve my credit rating in a short time?

The following technique will enable you to speed up the positive evolution of your credit tremendously.

1. Go to your local bank and open an interest bearing savings account by depositing around $400.00.
2. Go to the bank where you just opened an account and ask for a relatively short-duration loan (around 12 months). Tell them that you want to pledge the money you deposited as security for the loan. Usually the bank will be glad to give you anywhere from 70%-100% of the amount that you have on deposit as a loan. Remember that this is a business deal and the bank is not doing you any favors. They are making money by charging you interest on the money you borrow.
3. Since your original deposit continues to earn interest, this will partially offset the interest payments on the loan.
4. Take the money you borrowed from Bank One and use it to open a savings account at Bank Two.
5. Follow the same steps at three or four banks. Use the money you borrowed from the last bank to help you pay the first few payments of interest and principal.
6. Make sure you don’t get penalized for paying off the balance early. The longer you take to pay the loan off according to the agreement, the better for your credit report. But you may want to pay the loan off early. Also, remember to emphasize to each bank that you want your payment history to be reported each month to the major credit bureaus. Make sure that your payment reports are being sent to all three major credit bureaus.
7. The above method enables you to manufacture positive credit items on your report and will significantly expedite your credit’s repair. The downside is that you will be paying interest on the money you borrowed. Fortunately, your interest payments are partially offset by the interest payments the banks will be paying you on your deposits.