Rebuilding Your Credit

Rebuilding your credit will demonstrate to creditors that you are creditworthy and can handle credit responsibly. Credit worthiness means that you are likely to repay your debts. In exchange for good credit a consumer will receive better interest rates, more buying power and save thousands of dollars over the life of any loan.

Why New Credit Matters
How Do I Get New Credit?
What If I Moved; What State Should I Use to Calculate the Statute of Limitations?
Will Applying for New Credit Affect My Credit Score?
Building New Credit Habits
Results of Using Your Credit Wisely

Why New Credit Matters

Society is becoming increasingly dependent on using credit to make purchases and decisions. These days, good credit is used for more than just buying power. Businesses are using your credit score to make decisions about extending goods or services to you. Bad credit or no credit will require that you obtain new credit.

Your credit will determine such things as:

Shelter – Whether you are looking to buy or rent, good credit will dictate where you can or cannot live.

Transportation – Good credit equals the ability to qualify for a larger loan at a lower interest rate.

Employment - Many employers conduct credit checks as a part of the hiring process. If you haven’t demonstrated financial responsibility, a prospective employer might be hesitant to hire you. For example, the employer might believe your level of debt is too high for the salary offered or you may do something unethical to handle your financial responsibilities.

Utilities such as electric, cable, phone, water and cell phone companies all require a credit check sometimes resulting in large security deposits.

Since your credit is defined by how you’ve paid (or not paid) your bills in the past, many businesses – landlords, mortgage lenders, utility providers, and even employers – use your credit to predict your future financial responsibility. Anytime you need to borrow money, or even services, your credit is called into question. This is why maintaining good credit is so important.

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How Do I Get New Credit?

Once you’ve followed the steps in the Repair Guide you can begin the process of obtaining new credit to demonstrate how you will use your borrowing abilities in the future.

If your credit score is low you will have a hard time being approved for a major bank credit card. You can however ask for a secured card. A secured credit card operates just like a regular credit card. The major difference is that you, the cardholder, are required to make a deposit against the credit limit on the account. This creditor uses the deposit as security in case you default on credit card payments.

The credit limit on a secured credit card is usually 50% to 100% of the deposit you make. For example, if you make a $500 deposit for a secured card, your credit limit will be between $250 and $500.

You can also apply for other cards such as:

OR

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Will Applying for New Credit Affect My Credit Score?

The answer is yes. I know the goal is to expedite the rebuilding process but as the saying goes “patience is a virtue” . The worst thing you can do is go crazy applying for several lines of credit. Each time you apply an inquiry will be added to your credit report. Too many inquires can have a damaging effect.

Only apply for three or four cards to begin with. You can look under “FREE STUFF” on our website to guide you in selecting the types of cards that can help you. I also suggest getting a secured card as soon as possible. Secured cards are reported to the credit reporting agencies. This will jump start the process of becoming credit worthy.

Building New Credit Habits

Now that you have some lines of credit open, the second step in rebuilding your credit is to build new credit habits. The definition of insanity is doing the same thing over and over expecting a different result. You must replace your credit-damaging spending habits with new ones

The secret to achieving an excellent credit rating is to keep your credit card utilization at 50% or lower. For example:

Limit Credit Card A = $500

Limit Credit Card B = $300

Limit Credit Card C = $250

In other words, if you make purchases on any of these cards to their limit, you will need to repay at least half back each month (notice I said at least) I would suggest paying more than 50%. The take home message is your payment has to be more than the minium.

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Results of Using Your Credit Wisely

If practice really does make you perfect, the next step is to put your good credit habits into practice. Your credit score won’t improve until you show your creditors that you have what it takes to build a good score.

You can request an increase in credit every 6 months. Some creditors will automatically increase credit lines if all payments are made on time. The best way to guarantee success during this rebuilding period is to avoid taking on too many credit cards; it can get hard to manage your balances and payments.

Also try not to make purchases based on emotion. Unless what you are buying is a necessity, put a want item on hold and give yourself one day to decide if you really want to make the purchase. Don’t fall for items on sale. I promise, the sale will be there when you have cash.