How to Reestablish Your Credit
Without a good credit history, you will preclude yourself from securing a mortgage, auto loans and even landing your dream job.Once you significantly tarnish your credit history with foreclosures and discharges, you might feel like you will never have good credit again. While it does take a lot of effort and some time to reestablish your credit, it is entirely possible to improve your credit history and raise your credit score--even after years of neglect. Start now, and you may be able to reestablish your credit in as little as two or three years.
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Instructions
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Pay off any outstanding debts to the best of your ability by funneling all of your expendable income to your existing creditors. This means you may be living tight for a while--up to a few years, depending on the amount you owe--but your efforts will pay off for the rest of your life.
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Negotiate for and/or accept settlements on outstanding debt whenever possible. While a settlement may reflect negatively on your credit history, it looks much better than total discharge, so it may be worth the effort--especially if you have a considerable amount of outstanding debt that you cannot afford to pay down.
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Acquire a secure credit card from your local bank that allows you to borrow against money in your savings account. Like a traditional credit card, you can charge purchases to your account, make monthly payments and reestablish your credit by building a good history. Unlike a traditional credit card, you secure the spending limit on your card in actual cash, which stays in your savings account while you use the card. Once you pay the balance on your card in full, the bank release the funds in your savings account.
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Stick to just one credit card for the first six months you work to reestablish your credit. Submitting multiple credit card applications will ding your credit history and reduce your credit score even more. Once you secure one credit card, stop submitting applications and use just one credit card until you have a solid history of repayment.
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Pay your credit cards off immediately after making a charge. If you use the card to pay for an evening out, pay the bill as soon as you return home online or by telephone. Never charge something to your credit card that you do not already have the cash to pay for while you are working to reestablish your credit.
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Stay away from credit that does not help reestablish your credit history. This includes payday loans, pre-paid credit cards and other unreported personal “cash advance” loans. Not only are the interest rates typically through the roof, these creditors do nothing to help boost your bad credit history.
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Check all three of your credit reports on a regular basis. The three major credit reporting bureaus--Equifax, TransUnion and Experian--differ in their reporting practices. Creditors may rely on one or all of these agencies when checking your credit history, so it is imperative that you track all three. Use a service that allows you to check the three major bureaus on a monthly basis to save money. Report any inconsistencies or errors you discover immediately. Also take advantage of your one free credit report each year for extra protection.
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Tips & Warnings
Wait six months between each credit card and loan application you submit after you secure your first new credit card. This will space out your blemishes from credit inquiries, and it will look much better on your overall report than numerous applications in a short period.
Expect to spend between two and five years reestablishing your credit, depending on the severity of your bad credit history. As a rule, you can expect to spend about one year for every $5,000 of discharged or settled credit on your history and up to seven years for bankruptcies.
Do not rely on the “seven year rule” when you are working to reestablish your credit. While it is true that some details fall off your credit history after seven years, certain items--like unpaid discharges, judgments and foreclosures--can stick around for much longer.
