How to Reestablish Your Credit Properly

June 17, 2009

By Mike Wayman

There are numerous ways of reestablishing your credit after a bankruptcy or if you have impacted your score severely. Each strategy has certain benefits and downsides. This post is intended to provide my readers with a scoop on some of the better strategies and some to avoid.

Department store credit cards may be some of the easiest to qualify for. If you need to reestablish your credit and you don’t want to tempt yourself with a card that has a huge maximum then a department store card may be the best way to go. The typical department store card for those with tarnished credit may only have a $250.00 to $500.00 limit. Beware of the interest rates however! Some of the department store credit issuers can have high rates if you have less than perfect credit. The upside to having a low limit on a card that has a higher interest rate is that you can affordably pay off the balance in full each month if you need to. Paying off the balance in full each month is a healthy habit to acquire and it will help you avoid making massive interest payments.

One of the best ways to reestablish credit is through a “secured” credit card. These are credit cards whose limit is secured by a deposit. Many banks and credit unions offer these cards and require a savings account to be opened and the consumer must deposit an amount in to the account equal to the limit on the secured credit card. Often, these cards are linked to the account for auto payment. This is a great way to insure that the payments are made on time. However, the auto payment may only cover the minimum monthly payment. You’ll want to avoid interest charges on these cards so pay them off in full each month if you can.

These are two of the least negative ways of building credit. You should avoid the blanket solicitations that come in the mail or, if you are really interested in getting a card from a blanket solicitation read all of the fine print. Some of these cards charge enormous interest rates.