Rebuilding a Positive Credit History
The next thing you could look into doing to improve your credit is opening new, positive accounts. Depending on what you already have in your credit report(s), opening an account could give you an immediate positive impact, especially if you have limited or no positive accounts currently in your credit report(s). Opening an account may seem nearly impossible with bad credit, but one of the easiest ways is opening a secured credit card. This is almost exactly like a regular credit card except you would need to deposit money with the issuing back, which is used as collateral. Typically, the amount you deposit will be your credit limit, and in most cases, the minimum deposit will be anywhere from 200-300 dollars and can be as much as 5000+ dollars. The best secured cards report monthly to multiple credit reporting bureaus, which ultimately builds a positive credit history over time. In as little as 6 months to a year, you may qualify for another unsecured credit card or perhaps an unsecured credit limit increase. It wouldn't hurt to open 2 secured credit cards because the FICO scoring system likes to see a credit mix and that includes at least 2 open credit cards. Opening 1 secured card could improve your score, but opening 2 could give you a bigger and/or faster improvement. To see multiple secured credit card options with a short description of each option visit: Our Credit Options for Bad Credit page.
Once you have 1 or 2 secured credit cards, paying them on time each month is the key to building a good credit history. Your payment history accounts for 35% of your score and is the single biggest factor in determining your score. The next thing you should be mindful of and is almost as important is the balance to limit ratio. This accounts for 30% of your score, so carrying a high balance will have a large negative impact on your score. The optimal amount is keeping your balance below 10% of your credit limit. So if you have a $1000 limit, you would want to carry a balance of less than $100. A fairly common mistake is keeping your balance at zero, while this ensures you're not spending money on interest it also has a small negative impact on your score. So carrying a small balance will have a better positive impact on your score more than carrying no balance at all. For more information about how the credit scores work, visit our Credit FAQs.
Since the FICO scoring system likes to see a credit mix or different types of accounts, another idea you could try is going to your local bank or credit union and apply for a loan. Since you're working on improving your credit and/or building positive accounts, the bank may not approve you for a traditional loan. However, you could try asking for a small loan ($2,000 or so), have the bank put the loan amount (the money your are borrowing) into a CD and have them secure the loan with that CD. In all actuality money never leaves the bank, it goes from them to a bank account held by them. If you were to default, the account with the full loan amount can be taken by them for repayment. Perhaps you can even set-up an electronic withdraw each month (something the banks prefer). In essence, you will be paying back money you actually never took, but when you are finished paying back the loan, you'll have the loan amount in a CD account with interest earned on it. They may or may not approve you even by doing this, but it certainly wouldn't hurt to try, not to mention no real risk to them, which makes approvals a little easier.
Continue checking your credit reports every 3-6 months to ensure everything is accurate and no old negatives pop back up on your credit report(s). You can keep us updated on how things go with a particular collection agency or creditor by filling in the forms on our collections page or approvals and denials page. It's also important to note, try using the same company when checking and/or rechecking your credit scores. There are multiple credit score types and this could lead to some confusion down the road if you were to use a different scoring formula. Our top choice is MyFico.com because they will give you your actual FICO score for TransUnion and Equifax. Experian uses the Plus Score and Vantage score, so it wouldn't hurt to check 1 of these credit scores as well once in a while. Here are the links to Myfico.com and Experian's Plus Score: