Rebuilding Your Credit with Bad Credit History

Life can come with its fair share of adversity, especially pertaining to your finances. While some situations — such as car repossession, foreclosure, and bankruptcy — can cause your credit score to take a hit, there are effective ways you can rebuild your credit.

But rebuilding your credit doesn’t happen overnight — it takes time, consistency, and patience. There are no shortcuts or secrets, just dedication and determination.

Before we get into how to rebuild your credit, let’s briefly look at some common scenarios that can cause bad credit:

• Car Repossession
  When you miss several car payments, the finance company or lender has the legal right to retrieve – or repossess— your vehicle. A repossession can affect your credit in a few ways, showing up as a combination of items on your credit report including late payments, default, and collections.


• Foreclosure
  Similar to a repossession, a foreclosure occurs when the mortgage lender takes possession or ownership of the home after the borrower fails to make mortgage payments. Here's how having a foreclosure on your credit report can impact your credit history.


• Bankruptcy
  There are two types of bankruptcy you can file as an individual: Chapter 7 and Chapter 13. According to Equifax and Transunion, a bankruptcy can remain on your credit report for seven to 10 years. Here's how bankruptcy can impact your credit history.

Now that you know how different situations can impact your credit history, here are six ways you can start rebuilding your credit:

1. Pay your bills on time, every time.
   Making on-time payments is one of the most effective ways to rebuild your credit. Even if you can only pay the minimum balance, do your best to stay on top of your monthly payments.


2. Don’t get too close to your credit limit.
   Although having a credit card can help establish credit history, credit agencies such as Experian advise using no more than 30 percent of your total credit limit.


3. Apply for and open new credit accounts only as needed.
   If you apply for a lot of credit over a short period of time, it may appear that your economic circumstances have changed for the worse.


4. If you don’t qualify for a regular credit card, apply for a secured card.
   A secured credit card requires a refundable deposit that serves as the credit card’s limit. You can build a positive credit history with a secured credit card by spending within your limits, keeping your balance low and making on-time payments every month.


5. Be careful closing accounts.
   If you close some credit card accounts and transfer most or all your credit card balances onto one card, it could hurt your credit score if you are using a high percentage of your total credit limit. Frequently opening accounts and transferring balances can hurt your score as well.


6. Check your credit reports and fix errors right away.
   Because mistakes on your credit report can negatively impact your credit history, checking and fixing errors on your credit report can help improve your credit.

If you’re rebuilding your credit and need help getting approved for car financing, here’s what you can do:

1. Before car shopping, determine what you can afford.
   Review your current expenses and set a budget to determine how much you already have or need to save to purchase a vehicle.


2. Find a car dealership that will work with you.
   Credit Acceptance works with a network of more than 12,000 enrolled dealers across the United States that can offer credit approval on reliable new and used vehicles to every car buyer, regardless of credit history. See if you pre-qualify on our website and we’ll connect you with a dealership in your area that can help you get started!


3. Make on-time car payments.
   After purchasing your vehicle, you can start rebuilding your credit by making on-time car payments through Credit Acceptance. Since we report to the three major credit bureaus, making on-time monthly payments give you the opportunity to help rebuild your credit.

For more credit and car buying tips and resources, visit our Car Buyer Resource Center.

Are you in the market to purchase a vehicle? A car dealer enrolled in the Credit Acceptance auto finance program can help you get approved for financing.

Start your auto financing pre-qualification today!