In an ideal world, everyone could afford to pay cash for all items. Until that day arrives, establishing and maintaining good credit is important, because often we need credit to purchase high-priced items such as houses, cars and furniture.

Maybe you had some tough times in the past and now you’re paying the price for a poor credit history. The good news is that there are things you can do to rebuild your credit, even if you can’t get a loan or conventional credit card.

How a credit score works

Credit scores are three-digit numbers, typically ranging from 300 to 850, that creditors use to rate your creditworthiness. Scores are based on how responsibly you’ve paid off loans in the past. The higher your score, the more likely you will obtain a loan with good terms, because you’ve proven there’s less risk that you will default.

There are three major credit scoring bureaus: Equifax, TransUnion and Experian. Each agency uses different algorithms to calculate credit scores, so each bureau’s score may differ.

How to repair your credit

One good option is to get a secured credit card, which requires that you make a refundable deposit into an account as collateral. Usually your credit limit will be identical to how much you deposited. Although this is not ideal, it does allow you to open a credit account despite a poor credit history and, more importantly, rebuild your credit.

Ideally you would pay the full balance off each month, even though it’s not required. You must do two things if you want to rebuild your credit: Remit the required payment on time each month and maintain a balance of no more than 30% of your credit limit. This balance-to- limit ratio is known as the utilization rate.

To illustrate the utilization rate, let’s say you have a secured credit card with a limit of $1,000, because you have deposited $1,000 into the account. To keep the utilization rate below 30%, your balance should not exceed $300.

As you repeatedly pay the bill on time and keep your utilization rate under 30%, your credit rating should increase. Many lenders will report your account activity to the credit bureaus, which can increase your credit score. Before you apply for a secured card, check if the issuer reports to the bureaus.

The effects of bad credit

Not only can a subpar credit score affect your ability to get mortgages and car loans, or get good terms on those loans, it can also affect other areas of your life:

Insurance: Insurance companies routinely check credit reports in order to determine premiums for home and auto insurance. These premiums may be higher because of your payment history.

Employment: Many employers perform a credit check as part of the hiring process. It’s a controversial practice, but advocates say these credit checks are an important indicator of maturity, discipline and trustworthiness.

Housing: A low score can influence a landlord’s decision during the application process. Your credit report shows your monthly debts, and landlords review the report to see whether you could afford to pay rent. A bad credit score may not automatically exclude you from becoming a tenant, but delinquencies or accounts in collections may influence the decision. And if you owe money to another landlord, your chances of leasing the property are slim.

The road back to good credit may seem long, and you certainly won’t complete it overnight, but by taking some solid steps you will begin to find your way.

Guest Contributor: Roslyn Lash, AFC^®, is a financial educator and coach at Youth Smart Financial Education Services.