Good Tools to Help a Credit Score

The recession has taken its toll on many American's credit rating. Knowing you are not the only one in this crisis may provide some comfort. However if you are one of those whose credit has suffered because of unemployment or another financial emergency, you need to start immediately to repair your credit rating.

The first step is to get your credit report from one, or all three, of the three reporting services: Equifax, TransUnion, or Experian. Look it over carefully to make sure that all the information is correct. With a bad score it is especially important to remove all of the incorrect reports. Then begin to reduce your outstanding debt by making regular payments. If you have accounts that have been sent to collections or charged off, talk with your creditors to work out an arrangement to settle your debt.

In addition to dealing with your old debt, there are some ways to repair your FICO rating using new sources of credit. These include:

• Unsecured credit cards — Credit card offers are up. Lenders recognize that the credit problems many consumers have had in recent years were unique and not an indication of a lifestyle of credit abuse. As a result, some credit card issuers are looking beyond the score at other factors including income and credit history. Depending upon your long term credit history, you might still be able to qualify for a credit card. However, the lower your score, the higher the cost of credit will be. You might pay an annual fee for this type of card, as well as a higher interest rate. If you pay off the balance every month, the annual fee could be considered a small price to pay to restore your credit score.
• Secured cards — These are not new on the market. Secured credit cards require that you put down a deposit equal to the line of credit you will be given. You still have to make payments on the balance: if you rely on your deposit to cover your payments, your card could be cancelled. Secured credit cards also come with fees and high interest rates.
• Semi-secured cards — Once credit cardholders have used their secured credit line responsibly, some lenders will extend a credit line above the security deposit. Credit card companies view the secured/semi-secured card as a bridge strategy to move customers to their traditional credit card accounts.
• Personal Loans — These unsecured loans are offered by banks, credit unions and some credit card companies at a fixed rate over a fixed term. Personal loans can be used to repair existing credit, to build credit or to repair credit. It is recommended that the borrower use smaller loans of less than $500 that can be repaid easily and over a shorter period of time. Personal loans are growing in popularity. The amount of debt from personal loans has increased while credit card debt has decreased, according to the Federal Reserve. One reason is the relative affordability of a personal loan. The average interest rate on personal loans was typically less than half the credit card interest rates.
• Charge cards — These are cards that require that you pay the entire balance every month. American Express is one of the best known charge cards on the market. With a charge card, there is no revolving balance, creating a sort of forced will power in the card holder spending habits.

No matter which tool you choose to help rebuild your credit, you need to be responsible in how you open new lines of credit. Make sure you are able to repay the debt, and avoid the bad habits that got you into trouble in the first place.