So you've freed your credit reports of all questionable listings-no more slow to pay marks, missed payments, or bankruptcies. You're sleeping easier at night, no longer dreading to sit down to pay your bills, and enjoying your new sense of wellbeing. What a feeling!
Order your credit reports at least twice a year from all three major credit reporting agencies
If your objective was simply to get to this point, congratulations! If, perhaps, your goal was to buy a home
, or other large purchase item, it's time to re-evaluate where you are and choose your next financial goal. If you've had a bankruptcy, then you will be working toward reestablishing credit. If you have simply restored your credit history, then you may be looking at readjusting the interest rates
of any loans or lines of credit you took out during your "hard times." Whatever your situation is, the following are a few tips for rebuilding your credit and maintaining your clean credit history.
- Form a workable budget. Understanding the flow of your personal finances, what is going out and what is coming in, will give you a better feel for why some of your money is slipping through the cracks. With this information, you can make informed decisions on the best ways to use your hard-earned cash.
- Check out your credit report. Order your credit reports at least twice a year from all three major credit reporting agencies and look them over carefully. Verify that the information is correct.
- Make sure your bills are paid on time. Many banks now offer Internet services that automatically transfer money from your checking account to your creditors at a set time each month. Timely payments look good on a credit report. Don't overlook the telephone and utility companies-some of them now report late payments to the credit bureaus.
- Reestablish new credit cards. It's ironic that the credit that can cause some people to get into financial trouble is just what is needed to rebuild credit reputations. Initially it may be easier to get a secured credit card, but after a year of good history, you may be able to negotiate an unsecured card. Only use the card for expenses you can pay off at the end of each month, and don't apply for more than one or two. Maxed-out credit cards and frequent credit applications will hurt rather than help your new credit.
- Consider pre-approved credit offers. If you get a pre-approved credit card application in the mail, read it carefully before signing up. These credit offers can be good ways to begin a credit history as long as you use a reputable company and use the credit you receive limitedly.
- Ensure your new credit is being reported. Because you're trying to establish a high credit rating, it's imperative that your creditors report your activity to the credit bureaus. Make sure that whatever credit card you obtain is reported and that you use it carefully to ensure the things reported only help your credit.
- Obtain credit through your financial institution. After you've had checking and savings accounts in good standing at your bank for a year, try applying through your bank or credit union for a MasterCard or Visa.
- Try finding a co-signer. To do this, you must know someone who has good credit and who is willing to co-sign on a credit card with you. It's important to realize that if you default on your credit card and don't make payments or pay off the loan, your co-signer will become responsible for your debt, and that person's credit rating will suffer. This is not a relationship to be taken lightly.
- Be wary of schemes. One new scheme being used on those who need to reestablish credit takes advantage of the authorized user listed on a credit card account. These companies pay $50 to $150 to cardholders in good standing for them to add authorized users to their account without giving the new users the cards to use or the account numbers associated with the credit account. The companies arranging this then charge the new "authorized users" a hefty fee. Parents have been doing this for free for a while as a way to give their kids a head start, but using this method can be a risky business. If you are tempted to do something like this, proceed with caution.
- Push through high interest rates. To reestablish credit, you first need to qualify for and obtain credit. You'll probably be paying inflated interest rates in the beginning, but after you've proven that you can make your payments on time, you may be able to qualify for lower interest loans and credit cards.
As you continue to be careful and wise with your credit, your credit rating and credit history will improve. With these tips, you'll be able to build both good credit and good financial habits that you can keep and follow far into the future.