Getting approved for a credit card can be difficult without a positive credit history working in your favor. It’s a Catch-22: To obtain a credit card, you need a good credit history. But to have a good credit history, you need to establish good credit! This no-win cycle can keep people with a non-existent, limited or negative credit history from getting approved for a credit card.

However, it doesn’t have to if you understand the type of credit cards available and how to build a good credit history. When it comes to credit cards, the type of card you apply for will depend on your situation. For example, if you’re a student, there are special credit cards available that are geared just for you.  But if you’re a non-student with a non-existent or bad credit history, a card that is secured or obtained with a co-signer may be your best option.

With co-signed credit cards, the co-signer guarantees and is responsible for the debt. This means that the co-signing person is responsible for paying the full amount of the debt if the card holder doesn’t pay. In fact, when co-signed debt goes into default, three out of four times co-signers are normally asked to repay what is owed, according to the Federal Trade Commission. Furthermore, the issuing bank can attempt to settle the debt without first trying to collect from the card holder. The bank can also use the same collection methods against the co-signing individual, including suing and garnishing wages. If the debt is not paid, it can leave a negative mark on the credit history of the co-signer, as well as the card holder. Despite the risks, a co-signed credit card can be great tool for helping a friend or relative build their credit history so they can one day obtain a card on their own.

While secured, co-signed and pre-paid credit cards offer viable options, ideally you should start building a strong credit history, so you can obtain a regular credit card on your own in the future.

When trying to build a good credit history, it is important to understand how credit card issuers determine credit worthiness. The approval criteria varies from among issuing banks, but generally it relates to what’s often called the three C’s of credit: capacity, character and collateral.

Capacity refers to your ability to pay based on your income and existing debt. Collateral involves any assets you have that can secure payment, such as bank accounts or home ownership. And character is related to factors like your payment history, length of employment, etc.

To get a good idea about how your application will fare with credit card companies, check your credit history with one of the major credit reporting agencies: Experian (www. experian. com), Equifax (www. equifax. com) and TransUnion (www. tuc. com). These agencies receive payment information directly from the companies you have credit with, as well as from government agencies such as the legal court system. Credit reporting agencies use the information in your credit history to determine your credit rating or credit score. Credit scores generally range from a low of 350 to 850 on the high end.

Most banks will approve you for credit if your score is at least 620. If your rating is 720 or higher, you are considered an excellent credit customer and banks will offer you their lowest interest rate.

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If you would like to improve your credit score, then it is a good idea to understand a bit about how it’s calculated.

Your credit score is a number that is calculated by the three Credit Reporting Bureaus using information that is given to them by your creditors. This includes reports, good and bad, about how you’ve managed your past credit, whether your pay your bills on time, and whether you are up-to-date on your current loans.

For example, let’s take a look at your current obligations. You may have a combination of major credit cards (Visa, MasterCard, Discover, American Express), store cards, personal loans, mortgages, student loans and more. You may also make regular payments for utilities, telephone (land line and/or mobile), cable or satellite television, Internet access, etc. Each time you make a payment — or miss a payment — on your loans and other bills, it is reported to the Credit Reporting Bureaus.

The credit score for an average Americanis 693. When a financial institution evaluates a credit application, they consider any customer with a credit score of 700 or higher to be a good risk. And customers with a credit score of 750 or above are generally offered more favorable interest rates or lower fees (or both) as a reward for their great credit history.

But clients with credit scores below 675 — which is considered to be a low score — are considered to be a higher risk. These customers are labeled “sub-prime” borrowers and will be charged higher fees and less favorable interest rates in order to offset the bank’s potential risk of extending them credit.

And when  your credit score drops below 600, you may only be able to borrow funds with great difficulty, if at all.

So, let’s take a look at how your financial behavior will either increase or decrease your credit score.

• Your credit history accounts for 35% of your credit score.
  Making sure that all your loan payments and bills are make on time each month is the easiest way to improve this portion of your score. However, you can also destroy it in a hurry if you begin to fall behind on your obligations. If your credit score needs a quick boost, you can try making smaller, more regular payments on your outstanding debts. For example, rather than monthly payments, if you start to make biweekly or even weekly payments to your creditors, you should see some improvement in this section of your score.
• Your account balances contribute to 30% of your credit score.
  Total up the limits of your credit cards and loans, and then consider this number in relation to the sum of your available credit. For example, having a card or two maxxed out and the rest that are near their limits will give you a high ratio and reduce your credit score. On the other hand, if you owning several cards with high limits that you pay off each month will give you a low ratio and increase your score.
• The length of your credit history makes up 15% of your credit score.
  People who have been faithfully making their mortgage payments for years have a big benefit in this portion of their score, as it shows that they are disciplined and very responsible with their finances. However, if it appears that you’ve recently gone on a spending binge and greatly increased your credit card balances, the bank will assume that you are experiencing some level of financial difficulty.
• The type of credit you use accounts for 10% of your credit score.
  A healthy mix of a mortgage, a vehicle loan, and a credit card or two will indicate financial responsibility to the Credit Reporting Bureaus. But having numerous major credit cards, store credit cards, personal loans, and other outstanding debts will send the signal excessive consumer debt and financial irresponsibility, and will result in a reduced credit score.
• Credit inquiries contribute to 10% of your credit score.
  Each time a bank, store, or other financial institution runs a credit check on you, it is reported to the Credit Reporting Bureaus. These are maintained as a part of your credit report for up to 5 years. If your report shows a large number of recent applications for new credit, it is reasonable for the bank to assume that you are having financial difficulties.

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Anyone who already has a low credit score knows that banks will happily charge you penalties and higher interest rates on your credit cards and loans. If your score has dropped too low then you may not be able to get approved for a new loan at all.

Raising your credit score is not only a great way to become eligible for lower interest rates, but it could also mean breathing easier with your repayments each month.

It is possible for you to easily increase your credit score. It just takes a little planning and some discipline. You won’t even need to pay ridiculously high fees to some credit repair company when you do it yourself.

Here are some simple steps that will help improve your credit score.

1. Remove negative listings.
   It is very common for financial institutions to neglect to remove negative listings once you’ve cleared up any disputes you may have had. You are legally allowed to write to the 3 major credit reporting bureaus on your own regarding these listings. Your letter should request an investigation into any negative listings that appear on your credit report. Once they receive your letter they have 30 days to investigate your inquiry. If they can’t verify these entries, then they are required to remove them.
2. Payment timing counts.
   Although your bank or credit card company only reports on your repayment conduct monthly, there are no limits on the number of payments you can make each month. If you receive a paycheck each week, it is to your advantage to divide your required monthly payment by four and make a payment each time you get paid. You won’t be paying any additional money — you are just paying more frequently. This extra payment activity is noted by the credit reporting bureaus and helps to increase your credit score.
3. Catch up on overdue payments.
   This is the quickest possible repair solution for anyone with bad credit. Catch up on any overdue payments you have with all your creditors, and if you don’t have the cash to pay everything off right away, call and negotiate a realistic payment plan. Then when you’re completely caught up, call them and ask if they’ll notify the credit reporting bureaus that all payments have been met.
4. Low balances, high limits.
   If you’ve been diligent about paying off your debts, then you should have a low balance compared to your available limit. However, even  if you’re maxxed out and already at your credit limit, it may be possible to open new credit accounts with high limits… but make sure you keep the balance on these new accounts low, or even zero. When calculating your credit score, low balances with high available credit shows positive discipline and your score will increase because of it. However, if you’re the type of person who will be tempted to run up large balances on these new accounts, this is not a good option for you. It will only make your credit score even worse.

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1. Know Your Current Credit Score
   If you don’t know your exact starting point, you won’t know how much you need to increase your score, and you will find it difficult to track any progress you make. Order a copy of your credit report from one of the three major credit bureaus and find out your exact starting score. You may possibly discover that your score is higher than you thought!
2. Repair Credit Errors
   Did you know that you can legally dispute any incorrect items listed on your credit report — and you’re allowed to dispute these yourself? It is not necessary to pay expensive fees for credit repair companies to remove these for you. Do a web search ”credit repair letter templates” and then write to the credit bureaus yourself.
3. Negotiate
   If you are already behind on any loan payments or bills, then don’t be afraid to call your lender or credit card company. Ask them if you can negotiate for extended payment dates and discuss ways to reduce your payment costs by either taking advantage of lower interest options or refinancing and consolidating to make it easier to meet your obligations.
4. No More Credit
   If you’re trying to improve your credit score then don’t apply for any more credit and don’t keep using the credit cards you already have. If you can show a positive reduction on your existing balances — even if it’s only a few dollars a week — then your score will gradually increase as your total debt-to-credit ratio will begin to improve. No more credit!
5. Pay Off Outstanding Debts
   You’ll be surprised how willing most credit companies and banks can be when you call and discuss positive options. They do understand that everyone has moments where we all fall behind and they will be happy that you’re trying to catch up.
6. Arrange Payment Plans
   There is absolutely no point in offering to pay off your past debts at $1,000 a week if you know you can’t maintain those payments. Make sure you arrange for realistic payment plans that fit into your budget and will be manageable to keep up with.
7. Create New Spending Habits
   If you’re looking for ways to repair bad credit then obviously continuing your spending habits from the past are only going to get you into deeper financial trouble. Learn to allocate the money you receive from your pay check each week. Prioritize your repayments and your bills and make sure that you’re keeping up with the important things. The longer you keep up a great repayment history, the higher your credit score will be increased over time.
8. Professional Assistance
   If you’ve reached the point where your credit is already too bad to consider these simple credit repair tactics, then it may be time to seek professional help. Professional credit counselors and debt management companies can help you to work around your existing issues and get you back on track. Never be ashamed to ask for help. Listen to what advice the professionals can offer and make sure you act on that advice.

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