If you've suffered a hit to your credit and you are now back on your feet financially, it might be time to consider getting new credit. Below is an overview of the various ways you can get new credit if you are trying to repair bad credit.
For more articles on rebuilding credit, see our Improving & Rebuilding Credit area.)
For many people, it's best to start improving a credit score with methods that don't involve getting new credit. There are a number of ways to do this, from adding positive information to your credit report to opening new savings and checking accounts. To learn about how to do this, go through our checklist on improving credit without getting new credit.
If you are ready to re-enter the credit world, it's not always easy if your credit report is less than stellar. Here are some ways to work your way back into the credit system.
One of the most obvious ways to start rebuilding credit is to get a credit card. But first, figure out if you really need one.
If you already have one or more credit cards, applying for additional ones will not likely help your credit score and may lower it a little. Here's why:
However, if you don’t currently have a credit card, apply for one. You have two options:
If you can’t get a credit card or loan on your own, consider asking a friend or relative to cosign or serve as guarantor on an account.
A cosigner promises to repay a loan or credit card charges if the primary debtor defaults. A guarantor promises to pay the credit grantor if the primary debtor does not. Cosigners are usually used in consumer credit transactions. A guarantor is more likely to be used for business credit. Although creditors usually report both your name and the cosigner’s name to credit reporting agencies, confirm this in writing with the creditor.
Another option is to get a loan from a bank or credit union that is secured by a certificate of deposit (CD) or savings account. The banks often call these CD/savings secured loans. If you make all payments on time, you'll begin to rebuild your credit. To learn more about these types of loans, including what to look for when shopping for one, see Rebuilding Credit: CD/Savings Account Secured Loans.
Many local businesses will work with you to buy items on credit. Set up a payment plan with the store to purchase an item, and then make all payments on time. Learn how to do this in Buying on Credit From a Local Business.
Parts of this article were excerpted from Credit Repair, by Margaret Reiter and Robin Leonard (Nolo).