5 Tips for Getting Back on the Credit Card Ladder

You don’t really appreciate what everyone means by ‘credit crunch’ until you actually get rejected for a credit card or loan that you thought you were good for. The current economic crisis means that lenders are getting tighter and more exclusive about who they approve. The so-called ‘subprime’ group of consumers, ie those who are not able to get the market leading credit cards and loans, is expanding more and more – those who got approved for 0% cards only a year ago are now being turned down and descending into ‘bad credit’. It’s affecting middle income families now where it was previously something only afflicting low income, part timers and the unemployed. In light of this, more and more people are looking for advice on what to do after being rejected for credit, and how to get back in the lenders’ good books. So I thought I’d share with you my list of 5 things you can do to rebuild your credit history.

1. Get hold of your credit report and look for red flags.

There are a number of companies out there, depending on which country you live in, which for a small fee will allow you to view your credit report, which is essentially a master record of all your borrowing activity. This is the same data that a credit card company or bank will look at when considering your application. If you can see this BEFORE applying for anything you’re in a position of advantage because you can look for any potential issues on your file before they do, and try to fix them if possible. If you have missed payments, or worse, this is something that lenders will be able to see and won’t work in your favour. Some companies even offer you a credit score service – this can be useful but remember that every lender uses their own credit scoring system based on the data available, so it’s possible to be scored well with one company and not so well with another. Bottom line: knowledge is power – don’t go into any application blind.

2. Paying a bit of interest is no bad thing!

It may seem logical that credit card lenders are looking for responsible people that always pay off their debts. That’s true to an extent but remember they are also looking for people they can make a PROFIT from! If you are someone who NEVER gets charged interest and always pays your balance in full, amazingly it could lead to you being an unattractive applicant for a credit card. Sometimes its worth letting your interest be charged now and again. Although unfortunately I think for most of us this isn’t really a problem these days!

3. Correct any errors

Sometimes you might spot something on your credit report that simply isn’t true – maybe they think you had a missed payment when you didn’t, have the wrong address registered to you, or worst of all they somehow think you’ve been declared bankrupt when you haven’t. You can imagine how that could be screwing up your chances of getting credit! If this is the case, it is possible to apply for a correction to your file; a simple fix like this could make a world of difference.

4. Go easy on the applications!

One of the worst things you can do to your credit history is keep applying for more and more products (loans, credit cards, credit lines) when you get rejected. Two or three applications within a few months probably won’t harm you, but lenders can see the applications you’ve made, and although they can’t see if you were successful, multiple applications are a signal that you’re getting rejected by other lenders. Lenders’ attitudes are: “if none of those guys want you, why would I?”. Take it easy, and be aware of the damage that a 5 minute online application could cause.

5. Have patience and rebuild your payment history over time

The good news is that no matter how poor a credit history you’ve clocked up in the past, in most cases it’s never so bad that you can’t build it up to good standing in time. Some people are shocked at the interest rates offered by some ‘poor credit credit cards‘ (up to 40% or 50%) but for people who cannot get approved for anything else these cards can be used as stepping stones to a better credit score, if you use them sensibly. If you make sure you use them within the credit limit you’re given, pay back the balance in full every month to avoid the exorbitant interest, and make sure you never miss payments, after several months your credit history will start looking a lot healthier. Give it six months to a year of sustained, responsible usage and then try applying for that more upmarket card or loan and see what happens. Chances are you’ll be seen in a better light as someone who is responsible with their credit and willing and able to make regular payments.

This is by no means an exclusive list, but in my experience a good starting point to help you get back on track. Beyond this, my advice is that Google is your friend – make sure you do some research online, because there are plenty of guides, advice articles and forum threads out there that will be able to help you.

About the author: Tom is a finance blogger currently specialising in credit cards for bad credit. He strongly believes in picking through the complexities of the mysterious world of money and finance to help ordinary people make their way through the maze.

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