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How to fix your bad credit rating

By Erica Sandberg
Published: December 26, 2012

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question for the CreditCards.com expert Dear Opening Credits,
I have horrible credit and having been trying to fix it to no avail. I want to do what I can to fix it. My sister is willing to make me an authorized user on one of her oldest accounts. Will this help me by doing this? I am at a dead end. I have even tried to get a secured credit card through Capital One and got denied. Thank you for your assistance.    -- Chris 

Answer for the CreditCards.com expert Dear Chris,
There are very few true dead ends on the credit map. You're experiencing a roadblock for sure, but you can move forward and achieve your goals. Here's how.

1. Identify the problem. Did you have a credit card and run it up to such a degree that you couldn't pay? In that case, the company would have charged it off and sold the account to a collection agency or sued you for the balance due. Both of these circumstances would have resulted in a big black mark on your consumer credit reports, dropping your score and causing lenders to reject you as a customer. Other possibilities include not paying taxes or child support, defaulting on student loans, car notes or a mortgage.

Of course, many people have damaged credit because unexpected unemployment led to not being able to pay bills or a medical crisis that resulted in tremendous health care debt.

Whatever happened, you must locate the wrong turn so you don't go there again. If the situation was preventable, make a point to only borrow what you can afford to repay in the future. It's tougher if the event that lead to debt was out of your control, but perhaps you can increase your insurance coverage or save more of your income for emergencies to offset extreme wreckage.

2. Satisfy newer, bigger, badder debts first. Recency, frequency and severity are vitally important when it comes to credit problems. So if you've paid an account late many times, owe an exceptionally large bill or the balance just went to collections, well, you need to rectify that, pronto. It's definitely holding you back from getting another card. 

Review every debt you have and determine who ought to get the most of your money now. Those that need your immediate attention include the ones that you might have been (or will soon) be sued for. Accounts that will drop off your credit report soon (seven years for most negative information) or are past the statute of limitations for lawsuits for your state should take lower priority.

As you satisfy each ignored or delinquent debt, you're mending damage. As time goes by, anything that you don't cure becomes increasingly old and less important to a creditor, which also fixes the problem.

3. Borrow and repay, borrow and repay. Piggybacking on someone else's card is one way to re-establish your credit. I don't usually recommend it, because it is risky for both the authorized user and the account owner. If your sister makes a mistake and fails to pay as she should, the late payment notation could wind up on your report. Or if you misuse the card and overcharge, she will be liable for the big bill. Still, it could work out if she pays on time and keeps the debt low -- in that case, the positive activity will be reported to your file and your rating will increase.

Another option is to apply for your own credit after you've paid some of those balances off and have let time work its magic. After that, pursue a secured card again. Capitol One is hardly the only game in town, so look around. Check out the current deals, or if you have a checking and savings account with a bank or credit union, ask those institutions what they're offering their customers.

Once you have a credit card, start charging. Pay the entire balance before the due date. A long, clean pattern of regular borrowing and repaying is exactly what lenders love to see. 

See related: What to expect when you're made an authorized user on a credit card, 7 bad credit card habits to break now

Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.

Send your question to Erica.