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How do you go about obtaining new credit?

Since only a few negative listings are enough to earn you a rejection from most creditors, your first priority should be to repair your negative credit. If you do not have any negative credit and are looking to build good credit, you can apply for a credit card specifically for the purpose of establishing credit. Note that you may be able to obtain much of the credit you need even with negative listings on the credit report.

Most home loan guidelines (including FHA guidelines) require that you have no negative credit appearing within the last two years. This means no late pays, collections, liens, or judgments. If you have bad credit that is more recent, you may still be able to obtain a mortgage from a "subprime" or "sub-A" lender. The interest rate will be higher, and the loan will require more equity or a larger down payment, but it's possible. Given good income and a reasonable debt-to-income ratio, subprime loans may be the key to financing your home.

Automotive financing often allows some negative credit but at less than optimal terms. A few late pays will raise the interest rate slightly, but it adds up quickly. If your credit is badly damaged, you will pay substantially more in interest rates.

Standard rate credit cards are difficult to obtain with negative credit. Most prime cards will reject you for any negative credit whatsoever. But there are many credit cards that you can get with damaged credit. Some subprime cards require either a security deposit, others an annual fee or application fee. Most have low credit limits.

You can also build good credit If you know someone with good credit who is willing to let you "borrow" their status. Parents and good friends are likely candidates. They must have a credit card and trust you enough to allow you to become an "authorized user" on their account. Once you are issued the card, simply return it to your parent/friend. Your credit file will show an open account with all of the positive history of the primary account holder, and a small footnote will indicate that you are an authorized user of that card. When a new creditor reviews your file, they may insist that the balance on the card appear on your debt-to-income ratio. That shouldn't disqualify you for credit if your income is sufficient and you do not have excessive debts under your name.

There are a number of creditors who are traditionally more willing to extend credit to those with little or no credit. For example, many college credit unions will extend low limit credit cards to students without a credit history. Department stores such as Sears and JC Penney will issue store cards to encourage you to shop at their stores, as do electronics stores, furniture stores and cosmetics stores.

As with any line of credit, you must make sure that you handle these new accounts responsibly. The temptation to use a department store credit card is great. Just remember that you have to pay back every dime plus interest.