Not using credit cards responsibly is one of the most common reasons for bad credit scores.
But don't cut up your cards just yet if you want to get back on the road to financial recovery.
Using credit cards responsibly is also one of the most effective tools for improving your credit score and restoring your reputation as a responsible borrower.
Whether you've had late or missed payments in the past or got in over your head with debt, the resulting bad credit status can be disheartening.
A low credit score and sketchy credit history are bad enough, but it can also affect your ability to get new credit, buy a house, or qualify for a car loan.
Even if you are approved for those products, you'll pay higher interest rates and premiums than those with Excellent credit since you'll be deemed a risk.
Decades of experience helped me solidify a credit card strategy that keeps me on top of my bills and has saved me thousands of dollars.
After a few easy steps like setting up autopay, I had no worries about compounding interest and basically giving away free money.
But before you even get to that stage, it's important that you rebuild your credit.
The good news: bad credit doesn't last forever if you're willing to put in the work to turn things around.
And using credit cards strategically can help you rebuild and re-enter the world of strong credit.
Ready to improve your credit score?
Here's a step-by-step look at how the strategic use of credit cards can help.
Is your credit as bad as you think?
Dig into the details.
Before you can develop a game plan to rebuild your credit, you have to figure out what your credit is actually like.
If you haven't looked at your credit report or credit scores in a while, then that's your first order of business.
Take a good look in your credit mirror
Report card time. Everyone gets one free credit report per year from each of the three credit bureaus—Experian, Equifax, and TransUnion—via AnnualCreditReport.com.
You can request your credit reports all at once or space them out so that you're looking at one report every four months.
Your credit report lists out a list of installment and revolving debt accounts (credit cards, loans, mortgage, etc.), along with the amounts borrowed, balances owed on accounts, and repayment history.
It will also reveal any big red marks like if you filed bankruptcy, defaulted on any loans, or worse.
Correct any errors. If you spot any items on your credit report that seem wrong, it could be hurting (such as a reported late payment that you know was on time) file a dispute with your creditors and the bureaus to correct them.
Correcting even small errors on your credit reports can provide a quick boost.
What's your score? Once you've looked over your credit reports, you should also request your credit score.
Although there are many scoring models, the most common one used by consumers is FICO, which ranges from 300-850.
You can purchase your credit score for around $15, or you can explore ways to get a free credit score online.
Sometimes your banking institution and/or credit issuer might give you access to your score as well.
Depending on how in tune you were with your credit status to begin with, you either had an eye-opening experience or you confirmed what you suspected.
If you feel like you're way in over your head, then you might want to work with a professional credit repair company or financial advisor.
One of the alternatives you can look into is personal loans.
It will help you regain control of interest rates by repaying your debt in a fixed time-frame while also having the ability to pay fixed rates.
This is a big win if every month you're paying a different amount for the various credit cards you have.
For everyone else, you're ready to begin the rebuilding process.
Own Your Missteps
Once you know where you stand, you can start addressing your financial flaws.
Think of it as your first step in a recovery program: "My name is Tom and I'm a credit card-aholic."
Here are the most common credit misbehaviors and the impact they have on your credit score
Missed or late payments. Payment history is the biggest factor in your FICO score, accounting for 35% of it.
Once you're more than 30 days late, that information is reported to the credit bureaus, and your credit score takes a hit.
The longer you're late (60 days, 90 days, etc.), the worse the score consequences will be. Over time, the score damage will lessen.
In fact, the more on-time payments you make moving forward, the quicker you will repair the damage.
Carrying too much debt on your back. So here's a fact that surprises a lot of people—even if you always pay your bills on time, you can still have bad credit.
That's because if you are close to maxing out your cards, it gives the impression that you can't manage your debt load.
This is known as credit utilization, which accounts for 30% of your credit score.
If your lines of credit total $5,000 and you owe $4,000, that means you are utilizing 80% of your available credit.
While many experts say to keep your utilization below 30%, the closer you can get to zero, the better.
On a positive note, if you have debt right now, paying off a big chunk of it can provide a quick boost to your credit score.
Aim to pay down as much debt as you can, as quickly as possible, and you'll see some noticeable gains.
Delinquent accounts. This falls into the pretty-bad category.
Bailing on a debt you owe to the point that it was sent to collections can do a lot of damage to your credit.
If you have such blemishes on your credit reports, you need to contact the creditors to try to work something out.
Reconciling those accounts is a must if you want to make progress in your credit rebuilding mission.
Bang out your biggest problems
Of course, there are a lot of little behaviors that could be contributing to a lower-than-you'd-like credit score, but these are the biggies.
Once you get past them, you can move onto more advanced credit score growth hacks.
For now, be encouraged that regardless of which credit sins you've committed, it's never too late to make amends.
Use credit cards to improve your credit–sounds crazy, but it works!
If you still have existing credit accounts, you can get to start using them strategically.
But if your credit is in such a state that you can no longer qualify for credit, you have to start from the bottom up.
Not to worry—there are options, like credit cards designed to help people with bad credit.
Consider these "do-over" credit card options
Open a secured card. If you've had financial troubles, you'll have to earn back the trust of credit issuers.
That's where secured cards come in.
These products work the same as regular credit cards except that you have to put up money as collateral—a security deposit of sorts—to open the account.
Just make sure the one you go with reports to the three major credit bureaus so that your good behavior doesn't go unnoticed.
Become an authorized user. Piggybacking onto a partner's or family member's credit card account will allow you to build credit in your name.
But be warned: The main account holder is 100% on the hook if you don't pay the bill, so don't go ruining your relationships over money troubles.
Apply for a store credit card. If your credit isn't completely destroyed, you might qualify for a store card, which traditionally has less stringent qualifications than other cards.
Arm yourself with the appropriate plastic, and prepare for battle
Whichever route you take, at this point you want to end up with at least one credit card that fits your needs.
And you will take that card with you on your path to redemption.
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Swipe Strategically and Responsibly, and Let the Rebuilding Begin
Although denouncing plastic seems like an ideal way to stay debt free, we live in a world where credit cards and lending products are a part of life.
In order to have access to the best rates and terms, you have to demonstrate a track record of credit account management.
Ready to start swiping? Follow this plan
Start small. You don't want to fall back on old habits by spending beyond your means.
Use credit sparingly at first.
Try designating one type of purchase to the card, such as gas for your car.
Alternatively, limit yourself to an amount, say $100 for the month, and then tuck the card away until that's paid and you're back to zero.
Here's the key takeaway: however much you charge, you want to be able to pay off the full amount by or before the due date.
Watch the utilization all month long. Remember our old friend, credit utilization?
Even if you get into a groove where you're paying the bill in full at the end of the month, using most or all of your available credit can still bite you.
All it takes is one unexpected car repair or doctor's bill to put you behind, and then you're carrying a balance again.
Your strategy: figure out what 30% of your credit limit is, and self-impose that amount as the maximum amount you can spend.
If you're starting from scratch or with a secured card, you may only have a $300 limit to work with, which requires you to keep purchases below $100.
Make payments religiously. Late payments simply cannot happen while you're in the rebuilding stages.
To protect against that, set up automatic payments or reminder alerts via email or text message.
If you're afraid to set your payments on autopilot because cash flow is tight, just set the minimum payment.
Then, log on to pay off anything additional at your leisure.
You can even pay more than once per month.
If you get paid every two weeks, then split your payback into two payments per month.
If you do happen to miss a payment, get on the phone with the issuer ASAP.
Late payments are not reported to credit bureaus until you miss a full payment cycle, so there's a little leeway if you can get your payment in before that.
Stick with the credit-building basics
If you had to sum it up, just remember: make small purchases, using no more than 30% of your available credit limit, and pay the bill in full each month.
Plus, don't forget to set up your failsafe auto payments or notifications so life can't get in the way of your credit repair progress.
Regroup and Reevaluate
Once you've rinsed and repeated the good credit card behavior outlined above for a number of months, it's time to see if the needle is starting to move.
Check-in time: Assess if your efforts are paying off, but be patient
Re-check your credit score. With a consistent, positive payment history, you may start to see incremental bump ups in score in just a few months.
Even gradual increases can have a big impact on your life.
Just a few points can move you up into the next tier of credit, qualifying you for better products and rates.
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Celebrate gains, and build on them. If your score has ticked up, great!
You're doing everything right, so keep it going. If it's moving more slowly than you expected, don't be discouraged.
It's kind of like trying to lose weight—it takes longer for some than others.
For secured cardholders, if your credit score improved, you can contact the issuer (or shop others) to see if you're eligible for an unsecured credit card.
If you're a regular card customer, you might ask your creditors to increase your credit limits.
That's not so you can spend more, but so that it's easier to maintain a great utilization rate.
Be hesitant about adding more cards to your wallet. Eventually, you'll be poised to shop around for credit cards with more favorable terms, or ones that offer cash back and rewards.
But for now, keep practicing managing the one or two products you have.
It's also worth noting that every time you open or apply for a new card, that's a "hard inquiry" on your credit and can cause your score to drop temporarily.
For now, you want to stay focused on score-raising activities.
Stay the credit course
The hard work is starting to pay off. Remember, the impact of past negative items diminishes over time.
The more time that passes, the more your score will soar if you keep using your credit cards wisely.
Keep the Momentum Going
Once you've climbed your way back into fair, good, or even excellent credit territory, you don't want to let a slip up send you backsliding.
Keep your credit healthy for the long term with these score-protecting habits
Track spending. Living within your means keeps you out of debt.
To help you do that, track your spending using a budgeting app or with an old-fashioned spreadsheet.
Seed an emergency fund. By socking away a few bucks per paycheck into a designated "rainy day" account, it can grow into something you can fall back on if you run into financial trouble.
Think about it—a few hundred dollars can help you replace a broken down appliance without having to rely on credit.
Don't neglect your other bills. Although other entities, like utility and insurance companies, don't report payments to the major credit bureaus, falling way behind could result in getting sent to collections.
And that will hurt your credit!
Regularly review your credit reports and scores. Don't let years go by before you peek at your credit status again.
Mark it on your calendar, and take advantage of any free credit score reports offered by your credit card companies.
Financial freedom is on the horizon
Once you accept your new credit normal, you'll see that credit responsibility is not as hard as it seemed when you first began.
And once you begin to enjoy the perks that result, you'll be inspired to keep the momentum going.
Credit cards are a great tool for credit-building–if you know how to wield them!
Everyone's credit situation is unique, but by following the strategies above, anyone will see improvements to their credit score.
So, go ahead and start using credit cards again but not so you can buy things you can't afford.
Come at it from the perspective of making your credit cards work for you.
Keep the timely payments on your credit card bills coming, and promise yourself that you'll never carry a large balance again, and you're halfway there.
Even if a big leap in credit score takes years, every step forward improves your overall financial health.
Do you have any tactics that you've used to fix your credit?
What didn't work for you?
Let us know in the comments below!