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Rebuilding Your Credit

Bad things can happen to good people. If this happens to you, there is hope. There are ways you can get your credit back in shape. But you have to start working on it today -- and keep working hard to show potential creditors that you're serious about getting your credit back in order. As you do so, your credit score will improve, resulting in better credit offers and a substantial savings in money.

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Open new accounts and pay them off. Being able to repay a variety of new accounts is a key step in rebuilding your credit. That means that devising a strategy to open and pay off as many different kinds of accounts as you can is better than adding more debt to an existing credit card.
Start small. Rebuilding your credit can be similar to starting over from scratch, and starting small may be the easiest option. Credit cards from department stores or your local credit union can be useful.
Consider asking for help. If you can't qualify on your own, ask a friend or family member to cosign for a small loan or credit card. If you can stay current on a major credit card account or small auto loan, this will speed up the process of re-establishing good credit on your own.
Consider a secured credit card. They are guaranteed by a deposit that you make with the credit grantor. The cards offer the purchasing power of a major credit card. Just make sure the grantor reports payment histories to one of the three major credit bureaus so you're building your positive payment history.
Use your new accounts in moderation. And make payments that are more than the minimum. You can keep a small balance so that your positive payment history will continue to show up on your credit report.
Keep your balances low. Avoid carrying a balance that is more than 30% of your credit limit (creditors may view it as excessive debt that you may not be able to stay current with).

Time Frames

Typically there are generally accepted time frames that you need to meet showing you have rebuilt your credit. Keep in mind these are only guidelines. Here are a few of those guidelines:

If you have had more than a few recent late payments, guidelines typically say you need to have 12 months with little or no late payments before you can qualify for most programs.
If you have filed a Chapter 7 bankruptcy, you must have 2 years re-established credit after the discharge (not the filing).
Typically all collections and judgements have to be paid prior to closing your loan. Sometimes exceptions may be made for medical collections.
It takes some time for your new credit history to gain momentum. You're demonstrating that you are not depending on certain credit cards and loans for your financial survival.

That's why opening and paying down accounts may make it a little easier to get more credit. With patience and timely repayments, you'll likely be able to build a new credit history that creditors will look upon favorably when making decisions about your ability to handle even more credit.

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