Tips to reestablish credit

There are a number of ways to reestablish credit, some good and some that simply take too long and are not very effective.  I will address some of the most common methods, noting both the positive and negative aspects of each.

Secured credit cards: This method is both costly and time consuming. Keep in mind that all types of credit are “rated” differently and this is one of the lowest rated types of credit and the time frame it takes to develop a “history” for the account makes for a long process of improving your credit. 

Department store credit cards:  This type of credit is usually easy to qualify for as their guidelines are usually less strict than for other types of credit.  With that said, keep in mind that again, they are rated lower then other types of credit and it takes a long time to develop a “history” for the account and is thus a time inhibited approach to quickly increase your credit history while improving your score.

Find someone to cosign for you:  This is one of the better choices to quickly and effectively increase your credit score.  It does require that you have a close friend or relative that has trust in you and good credit at the same time.  It also goes without saying that you must meet your financial obligations and not default as the creditor will then go after both parties for full payment and could potentially hurt both of your credit ratings.

There are a couple of points to keep in mind while utilizing any of these techniques.   Make sure that the company you are working with regularly reports to the three major Credit Reporting Agencies: Experian, Equifax and TransUnion.  Also, keep the balances on any of these accounts to a minimum.  A high “Debt to Credit Ratio” (balances divided by the credit limits) is a very large factor in the algorithm that is used to calculate your credit score…the higher the ratio the more negatively it will affect your score!

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