How to Re-Establish Good Credit

To re-establish credit after you've had credit problems in the past, try these three strategies:

1. Open a Secured Card.
With a secured card, you put up a certain amount of cash into an account -- perhaps $500 or so -- and that becomes your credit limit on the secured card. Apply for a single secured card; you'll get it just by forking over the cash as I described above. Then simply make on-time payments for 6 to 12 months. This will definitely help you boost your credit scores because it will generate some positive payment history for you. It will also help to offset somewhat the past negative marks in your credit files. Before opening a secured credit card, just make sure the bank that issues the card does, in fact, report to the credit bureaus.

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Dirty Credit Card Tricks

Say "Bye-Bye" to Your Grace Period
No grace period means that you'll start accruing interest the moment you charge something and that can cost you a bundle of "extra" interest. Most credit card issuers have already reduced their grace period from 25 days to 20 days. Many others have eliminated the grace period altogether. Now they are coming up with more and more reasons to take away your grace period. Miss a payment? Stop carrying a balance? Bye-bye grace period!

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Dirty Credit Card Tricks

Punishing You for Being Smart
These fees are the lowest of the low because they penalize you for being a responsible credit card user. Some of the biggest offenders include charging you a fee for:
+ Closing your account
+ Failing to use a card for a period of time (such as six months or a year)
+ Not carrying a balance
+ Every transaction each and every time that you use your card
If your card charges you any of these fees, it's time to look for a new card!

Dirty Credit Card Tricks

Lowering Your Minimum Payment
Another way some cards try to jack up their profits and lure you deeper into debt is by lowering the minimum payment due on your balance. It used to be cards required a minimum monthly payment of about 4% of your balance, but many now require as little at 2%. Don't fall for it! Going from a $40 payment to a $25 payment on a $2,500 balance means it will take you an extra 19 months to pay off your balance!

Dirty Credit Card Tricks

Inviting You to Skip a Payment
Broke this month? In their infinite generosity (ha!), some cards will "invite" you to skip a payment. This "helpful" offer, which sounds great at first blush, often comes after the holidays when your balance is big and your wallet is stretched. DON'T DO IT! Skipping that payment can lead to a host of trouble from a higher interest rate to possibly having to make extra payments in the future. Are you starting to notice a pattern?! You should be skeptical whenever your credit card company does something "nice" for you without you asking for it!

Dirty Credit Card Tricks

Tricky Timing
We all know that our payment is due on a certain date or it's late, right? But a new twist being thrown into the mix is having your payment due by a certain time on the due date. If your payment is due at noon, and gets processed at 12:01, you get socked with a late fee AND likely a higher interest rate. Gimme a break! Carefully check your statement so you avoid this trap.

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Dirty Credit Card Tricks

2. Clean up Negative Information and Mistakes in Your Credit Reports.
Get your TransUnion, Equifax and Experian credit reports. You can get one of each report free each year from http://www.AnnualCreditReport.com. Dispute any mistakes you find. Also, contact your previous creditors and offer then a small lump sum payment to settle your debts, in exchange for them removing the negative information on your credit reports. Only do this for recently delinquent accounts (i.e. those from the last two years). Also, only give up cash payments to those creditors who agree, in writing, to delete black marks from your credit. If they simply note the account as "Paid" but leave the old, negative information there, that won't help your credit.

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3. Pay Your Existing Debts on Time.
Even if you have no regular card, it's likely that you have some existing credit accounts. Whether you have a mortgage, an auto loan, student loans, or other debts that are being reported to the credit bureaus, be sure to pay all those bills on time -- every month without fail. The single biggest determinant of your credit score is your payment track record. That accounts for 35% of your credit score. So simply paying your bills in a timely fashion will improve your credit rating over time.

By using these three techniques, you will see your credit scores improve in a year or less. BUT, if you fit into the category of those adults who have a "thin" credit file or no credit file at all, you can establish good credit too.

To establish a credit history, and generate a FICO credit score, you need to have at least one credit account that is reported to the credit bureaus, and that account must be open and tracked for at least six months. So start by applying for a single national brand credit card, such as a Visa, MasterCard or Discover card, before you apply for something major like a mortgage. If you can't get a regular card, open a secured credit card. Pay the secured card on time, and after those payments are reported for six months, you'll meet the minimum requirements to get a FICO credit score.

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Lynnette Khalfani-Cox, an award-winning financial news journalist and former Wall Street Journal reporter for CNBC, has also been featured in top newspapers including the Washington Post, USA Today, and the New York Times, as well as magazines ranging from Essence and Redbook to Black Enterprise and Smart Money. Check out her New York Times bestseller, 'Zero Debt: The Ultimate Guide to Financial Freedom.'