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At this point I am assuming you have successfully accomplished all the above steps. This next step will use your every day purchases to demonstrate to lenders that you are responsible about paying back the money you owe! During this time you will continue to set aside real cash to pay for your usual expenses as planned in your budget. Only now you will responsibly use your credit accounts to pay for every day purchases. The purchases on credit are backed with real cash but using your credit accounts and paying them off quickly will build your credit history and boost your credit score. Just remember - irresponsible use of credit or purchases that are made without real cash set aside is very dangerous!

Using credit wisely will result in a higher credit score. That means you will be in a better position to save on my other expenses. Just like credit can be used to build you up, credit can be used to break you down. Using credit without a plan and without real money set aside to pay off the loan prior to interest charges accruing will once again move your quality of life in the wrong direction!

You spend your money on things throughout the month that you need and sometimes want. Most people who have gone through bankruptcy or hard financial times believe that they should only pay in cash for those purchases. That way they wont get themselves into financial trouble again. (Honestly, I believe if you spend all your money and don't manage where it is going it wont matter if you pay with cash or credit. You are going to be in trouble.)

You are going to pay every bill and expense you have with your credit cards. This includes groceries, gas, utilities, tuition, daycare, etc. NOTE: THIS IS NOT A LICENSE TO NOW SPEND INDISCRIMINATELY. As with every expense you will only permit the purchase or payment if it is part of the budget and be paid for in cash. Following the budget is crucial to make this work.

Example: your $100 cell phone bill is due. Throughout the month you have followed your budget and with each paycheck you had set aside enough money to pay the $100. You could write a check right now. However, you will pay with your MasterCard instead since your phone company allows you to pay with a credit card account without charging you a fee. The $100 will continue to be set aside and untouched. You paid the phone bill on time - credit toward your score. The $100 is sitting in your interest bearing checking account making money for you. 20 days later the MasterCard statement comes and you pay it with the $100 you had set aside - credit toward your score.

One quick note of warning on using credit cards for purchases and payments. I would advise you not to spend on the future. In other words, do not use your credit card in the manner I just described unless you have real cash set aside for the bill. If you are following your budget you should have the appropriate amount of money set aside. However, I have seen some people slip up even after they have got ahead.

They have rebuilt their credit, are following their budget and financial plan, and are making good spending decisions. They now get a false sense of security and start paying the bills on credit with the agreement they make with themselves that they will put the money aside with the next paycheck. Don't fall into that trap. This step takes responsibility and self control.

Real Life Story: My mom made the best cinnamon rolls in the world. The first time I ate one I was hooked for life. They were a lot of work to make (so she claimed) so she could only make them once a year. She would make a double or triple batch, but those were only going to last a few hours at best. The entire family, even our German Sheppard "Shultz", would hover around the kitchen jockeying for position to be ready to lunge at the oven when the timer went off. Now, I have a confession to make about one particular cinnamon roll day. After the initial feeding frenzy began to settle a little in the kitchen I was instructed to take several cinnamon rolls to, Brian, the man that worked for my dad at our house. Those cinnamon rolls never made it to him that day. This plate of rolls was in my hands, they were warm, and smelled so sweet and delicious. I just couldn't make it downstairs with this loaded plate and give them away. I snuck away to another part of the house and quietly enjoyed those rolls as well. How embarrassing that I had no self control. Unfortunately, I have seen the same thing happen to people when a credit card is put in their hands. They lose control and spend outside of your predetermined budget and plan, with no cash to back up the purchases. So here is my warning. If you simply cant control yourself you need to skip this step. You can not spend more than you have in cash. If you do your progress will be gone and you will start moving backwards into debt again. This method of paying your bills will help build your credit but you must responsibly follow the plan. This part of the plan is not permanent. You will only follow this for 1-2 years so you can demonstrate that you can responsibly manage and pay off an increasing amount of credit account usage.

You should not use more than 40-50% of the available credit on any account you have. Also, remember that this step is only for rebuilding credit and demonstrating your responsibility in paying your debts in a timely fashion.

How will you know when it is time to stop using credit in this manner? Every you at the same time you will check your score. That will indicate to you what actions you need to take for the next 12 months. See step 7 for more specific guidance.

I realize that there are those that believe you should cut up your cards and go on a strict cash basis. If you cant demonstrate self control and manage your accounts then, yes, you should do exactly that. Otherwise, you will just get in and stay in trouble. However, if you can commit to yourself to responsibly manage your credit and spending according to your budget this is one of the initial steps that can rebuild your credit score.