Building good credit is an important topic for anyone who is concerned about their financial well being. Generally those that are looking to build their credit fall into one of two different scenarios. Either they are trying to repair their poor credit, or they are trying to establish new credit. Repairing credit is a bit more involved because it involves undoing the damage that has been done previously as well as establishing new, positive credit history.

Well, if you are in the first situation explained above the very first thing you will need to do to start rebuilding your credit once again is to repay all the debt you have acquired. It does not matter if they are medical bills, credit card payments, etc, the quicker you get these debts paid off, the quicker you will begin to regain your score. Contact all of your creditors to negotiate either a repayment plan or another way you can repay the debts as quick as possible. If you cannot find a way to manage your monthly expenses wisely and are in need of help to do so, you may want to consider contacting a credit counseling agency to guide you in the right direction.

From FTC:

“Just because you have a poor credit report doesn’t mean you can’t get credit. Creditors set their own standards, and not all look at your credit history the same way. Some may look only at recent years to evaluate you for credit, and they may give you credit if your bill-paying history has improved. It may be worthwhile to contact creditors informally to discuss their credit standards.

If you’re not disciplined enough to create a workable budget and stick to it, to work out a repayment plan with your creditors, or to keep track of your mounting bills, you might consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But remember that “nonprofit” status doesn’t guarantee free, affordable, or even legitimate services. In fact, some credit counseling organizations — even some that claim non-profit status — may charge high fees or hide their fees by pressuring consumers to make “voluntary” contributions that only cause more debt.”

A credit counseling agency will be able to advise you on the best strategy for your particular situation, and would be a great start when looking to rebuild your credit. Once you have taken care of your old debts it is time to decide whether or not your financially fit to take on some new ones. The only way you are going to be able to rebuild your score is to take out another personal loan, credit card, etc. It is also always suggested that the consumer take out unsecured loans because they will generally build credit faster. But again, do not even consider taken out any more debt until you have all of your previous debt out of the way, and you are able to manage your monthly expenses wisely.

What about people with no credit history?

When you are first getting started, however, and have no credit, the process is a little bit different. Having no credit is better than having bad credit and building good credit can be done fairly quickly. The first thing you want to do is get yourself a credit card account and be very, very careful to never miss or be late on a single payment. At first the limit may be low, but that is okay. What is important is that you establish trust with the credit card company and look to get the limit increased over time.

A good strategy is to seek a new credit limit increase every 3-6 months or so at first. But in order to do this, you need to show them that you can handle the credit you have been provided. You do that by using the credit card and paying it off each and every month. They want to see that you can be trusted with the credit they are giving you before you will be offered a higher limit. Also, be very careful not to exceed your credit limit as that is a sign that you don’t pay attention to your financial affairs and will be looked upon negatively.

Another good idea to establish your credit is to get a car loan, if you are in the market for a car, of course. You can use a parent as a co-signer for you so that the lending institution has assurances that you will repay the debt, but make sure that you get the loan put in your name to build up your credit. Be aware though that no one should do this unless they really think they can manage every monthly payment on time. If you do not, your co-signers credit will be affected as well if you fail to repay the loan in a timely matter.

Moe Bedard
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.