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How to Rebuild Bad Credit
Repairing your credit – getting rid of the negative credit report information and caught up on past due bills – will raise your credit score some. To raise your score to a level high enough to get loan approval and better interest rates, you’ll have to rebuild your credit – prove that you can handle credit responsibly. Getting started might be difficult, but once you begin to build momentum, you’ll be coasting your way to a good credit score.Get New Credit
If you don’t have any credit cards you can use, the first step is getting one. If you’re credit score is low, you’ll have a hard time getting approval from a major bank. You still have some options.

Be careful when you apply for new credit. Make sure you don’t put in too many credit applications. It will affect your credit score, making it harder to get approved for new credit.
 Build New Credit Habits
As the saying goes, “If you do what you always did, you’ll get what you always got.” To build new credit, you must replace your credit-damaging spending habits with some new ones. Otherwise, you’ll end up where you’ve worked so hard to get away from.

Gone are the days of charging things you can’t afford, making minimum-only payments, and skipping credit card payments. Improving your credit score means staying well below your credit limit and paying your credit card bills on time.
 Rebuilding In Action
If practice really does make you perfect, the next step is to put your good credit habits into practice. Your credit score won’t improve until you show your creditors that you have what it takes to build a good score. That means charging only what you can afford and paying your bill on time each month. During this rebuilding period, don’t take on too many credit cards as it can get hard to manage your balances and payments.

When you’re working to build or rebuild your credit history, how you use credit is everything. It’s important that you build the right credit habits to build and maintain a good credit score.

Unfortunately, credit cards don’t come with manuals for wise use. You may have already learned the hard way about the devastating effects of credit misuse, but it’s never too late to start over.

Starting Out
Start out slowly. Make small charges on your credit card and pay the balance in full each month. The goal isn’t to use your credit card to buy things you don’t have the cash for, but to begin building a good credit history and instill good credit habits.

One way you can get used to your credit card is to use it to pay a small monthly subscription or other recurring bill, something around $20 or less, and pay it each month. Let this be the only charge you make with your credit card for at least six months. This will get you in the habit of staying below your credit limit and paying your balance in full every month - two habits that will have a positive effect on your credit score.
Taking the next step
After you’ve gotten into the habit of paying your bill in full, you can begin using your credit card to make small purchases. Continue to keep your balance low, 30% of your credit limit or less. That means your balance should never rise above $30 on a credit card with a limit of $100. When you make a credit card purchase, put the money aside immediately so you won’t spend it before your bill comes. Then, when it’s time to pay your credit card bill, you already have payment.

As you use your credit card the right way, your creditor will likely increase your credit limit, allowing you to charge more on your card. Continue to stay within 30% of your limit even as your limit increases.
Putting good credit habits into action takes self-discipline. You’ll have to tell yourself “no” when you want to use your credit card to make a purchase but can’t pay your bill in full at the end of the month.
Dos and Don'ts of Using Credit Wisely

When you put money aside to pay your credit card bill, make sure you don’t spend it on something else.

Most credit cards allow you to view your account activity online. If your credit card gives you this ability, sign up so you can monitor your credit card balance and pay your bill online.

Start out with just one credit card, so you can keep your payments manageable.
How Many Credit Cards is Too Many

Stop credit card offers so you won’t be tempted to open new credit cards.
Opt-out of Credit Card Offers
 There may be months that unexpected expenses keep you from paying your balance in full. During those months, make at least the minimum payment and don’t increase your credit card balance by making more credit card charges.
Five Principles of Making Credit Card Payments

If you know you don’t have the money to pay your credit card balance, put the card away. Don’t use it until you can afford to.
Thinking about making a credit card purchase? Before you swipe your card, consider how much you can afford to charge. It will have an effect on your wallet and your credit score.
One of the principles of building a good credit history and staying out of debt is charging only what you can afford to pay. But just how much is that? The amount varies from one person to the next depending on each person’s income, expenses, credit limit, and other credit card balances.
 Charge only what you can afford
The amount you can afford to charge mostly depends on your discretionary income – what you have left after taxes and other necessary expenses have been paid.

Most employers withhold taxes directly from your earnings. In this case, what you're paid is your net income or disposable income. Then, from your disposable income, you pay bills, buy groceries, and fulfill other financial obligations. Anything you have left is what you might call your “spending money” or, more technically, your discretionary income. You would use your spending money to pay off your credit card balance, so you should never charge more than you have available to spend.
Disposable Income – Necessary Expenses (rent, utilities, etc.) = Discretionary Income
Your credit score thrives when you pay your credit cards in full each month. So, if your discretionary income is $1,000, the most you can afford to charge is $1,000. Don’t forget to take into account money you might spend on clothes, entertainment, etc.

Other factors to consider
Credit limit. Besides your discretionary income, you should also consider the credit limit on your credit card. Never charge more than your credit limit. In fact, you should stay well below your credit limit to protect your credit score. The best practice is to keep your credit card balance below 30% of your limit. So, on a card with a $1,000 limit, you shouldn't charge more than $300.

Credit card balances. If you have balances on other credit cards, it’s best to pay off those balances before making any new credit card purchases, especially if you’re already having difficulty making payments.

Emergency fund. Having an emergency fund keeps you from having to use your credit cards in case of a financial emergency. If you don’t already have one, you should build an emergency fund rather than making new charges on your credit card.

Future loan applications. Will you be applying for a mortgage or car loan in the near future (six months or less)? If so, the only thing you should be doing with your credit cards is paying off the balance. Mortgage and auto lenders don’t want you taking on any new debt before approving you for a loan. So, if you’re going to be applying for a loan soon, leave the credit cards in your wallet at least until after you’ve been approved.

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