Three steps to get your credit history back on track

Meet Dixie. As a university student she was sent a credit card and what with no income and lots of temptation, Dixie ended up falling way behind on her payments. The result: a store clerk took away her card and cut it up right in front of her. How embarrassing! While the pain of being dissed publicly may have dulled, the damage done to her credit history lingers.

To make matters worse, at university Dixie was a little slow paying her cell phone bill. While her service was never discontinued, she did carry a balance from month to month that she cleared at the end of each school year.

Last year, when Dixie applied for a car loan, she was turned down because of her crappy repayment history. She's worried about the future and how her past borrowing mistakes will haunt her when it comes time to buy a home. Sound familiar?

If you see yourself reflected in Dixie's story, no doubt by now you know you're not the only person in this particular leaky boat. Unfortunately, many people have no experience managing credit make mistake after mistake:

• they make their payments late
• they go over their credit limits
• they have a b’zillion credit cards in their wallets
• they miss making their payments, or worse
• they stop making payments completely when they feel there’s no end to their misery.

If you’ve fallen behind and your credit record has become tarnished, where should you go from here?

First, you've got to get yourself some credit again so that you can demonstrate what a good job you can do managing it. The only way to establish a credit history is to use and repay credit. There are a number of ways to go about rebuilding your credit history.

1. Take out a loan to make an investment (another good reason to start a retirement savings plan), make your monthly payments on time and build a shiny new credit history. Since the institution that's giving you the loan will also be holding the retirement savings, the credit procedure is far less stringent than it normally would be.


2. Ask a co-signer or guarantor to help you get a small loan of, say, $1,000, which you would then pay off over three months. It would cost you in interest, but you would be back on track credit wise.


3. Don't want to incur the interest costs? Apply for a “secured” credit card. With a secured credit card, you put up cash to cover your balance. Lenders often want twice the credit card limit, so if you want a $500 credit limit, you'll have to ante up $1,000. Once you've established your ability to manage the card — anywhere from six months to a year — you can ask for the security requirement to be dropped and your deposit returned.

Thinking of hiring a credit-repair company?
Don’t bother.
Credit repair companies can’t do anything you can't. A credit bureau will not remove accurate negative information from your credit report before the legal time period has expired so don’t get suckered by anyone who claims they can mop up your credit disasters faster. There are no "loopholes." The only way to fix a poor credit rating is to be smart about how you use credit. Learn from your mistakes and move on.