The road to re-establishing your credit can be a bumpy one, especially if you have to start over from scratch. The main thing you want to remember is that you need to have a solid foundation to rebuild your reputation. Several basic guidelines can help you to stay on course.
Whatever your goals are, once your credit report has gotten the boost that it needs, the efforts to reestablish your credit should begin with you. While you may have big dreams, you need to recover slowly. You don’t want to make a misstep and end up falling back down the rabbit hole again.
Often, after having a rough bout with credit, the tendency is to swear off credit for good. The vow to go strictly cash can be strong after surviving a difficult time with creditors and bill collectors. However, that is not always a wise decision. In fact, it could make it even more difficult for you later on. You’ve learned your lesson about bad credit, but you are smarter now, and you know that credit itself is not the bad guy, it’s how you use it.
You now have a credit goal, and you know what to do with it. You know how much credit you can charge and still keep your score high, and you know the importance of making timely payments. You have all the tools you need in your arsenal to start your rebuilding campaign.
Step 1: Know How Much Credit You Need
For this, you need to determine your debt to income ratio. When you are ready to apply for new credit, lenders will look at this percentage to make a final decision on giving you credit.
The formula for this is simple. Take you’re the total from your list of financial obligations and divide it by your gross monthly income. It will give you the percentage of credit you should have in your arsenal. For example, if your monthly income is $1500.00 and your total monthly expenses is $800, the formula should look something like this. 800/1500 = 53%
The higher this percentage is, the less likely a creditor will be willing to issue you new credit, even with a good score. While you may have been able to boost your score by taking the steps we outlined earlier in the book, the biggest rewards will come later on.
Once you know what your debt to income ratio is, you can use that to determine how much credit you want to apply for. Credit counselors recommend that you have around a 43% or lower ratio for optimum credit appeal.
Step 2: Start Small
You may have big dreams but keep it within realistic boundaries. Remember, you’re trying to recover from credit illness. If you had been physically ill to the point where you needed hospitalization, you wouldn’t come home from the hospital and automatically resume your same routine. You will build up your strength a little at a time until you were back to the same physical condition you were before.
You should view rebuilding your credit in the same way. Don’t look to establish an unsecured bank credit card fresh out of the gate. These are probably the most difficult to get. Instead, aim for something smaller, a secured credit card at your local bank, a department store card, or a gas card.
Try to choose a merchant that you are sure is going to approve you. This will keep the number of inquiries on your account low, which could have a negative impact on your credit score.
When filling out your application, here are a few things to keep in mind to make the process go smoother and the results will lean more in your favor.
- Do not put in more than three applications for credit in a single month. More than that and your score will drop.
- Don’t add anything to your application that won’t benefit you in some way. Some businesses will allow you to make purchases without established credit but will only report to the credit bureau once you’ve paid it off. Only put these on your application if you’ve made regular payments and you know it will boost your score.
- Only apply to those that will raise your overall credit score.
Chances are, once you get this credit card it is going to come with a higher interest rate so when you get it, don’t run out and charge it the first chance you get. Instead, start by making small purchases and then make sure that you pay them off well ahead of their due date.
As the months go by and you are making regular payments, you can begin to increase your purchase amounts little by little. Your creditor will notice that you are spending wisely and will likely drop the need for a security behind the card you have and perhaps even increase your limit. Remember, they make their money by charging interest so the more money you borrow, the more they can earn. Still, you don’t have credit to support them, so maintain self-control and stay within your limits and your score will naturally increase.
Step 3: Protect What You Have
No matter how much or how little credit you have, never take it for granted. Make sure that you follow the rules and your credit should stay in good condition.
For that reason, try to avoid closing an account for any reason. Remember, the longer the information remains on your report, the better it is for your credit score. Even if you don’t plan to use it very much, it is the relationship that potential creditors will be looking to see.
With revolving credit (credit cards), avoid using them too often. Only charge as much as you can reasonably pay off within a given month. No doubt, you will continue to hit rough patches here and there, even people with good credit need to be prepared. Make sure that you can pay the minimum balance at the very least to keep your score from falling again.
With credit that you use infrequently, make it a habit of making a small purchase from time to time so that the account does not become inactive. Then pay off the total balance immediately when you do.
Establish a rapport with your creditors. That way, if you end up paying late one month, you have a friend you can call that can help you to recover quickly. Missing a payment or paying late can be the death knell for a newly recovered credit score, the more friends you have in your corner, the more likely you will come out on top when that happens.
Use automation when you can. We all live busy lives, and it can be really easy for a date to pass by without noticing it. In most cases, this is not a really big problem, but if you’re trying to recover from bad debt, you want to avoid this type of situation at all costs.
One way to do this is to use modern technology to your advantage by taking advantage of automated payment systems. This will ensure that every payment will be made on time without you having to worry about it.
There are several ways to do this 먹튀검증업체.
- Set up an automatic payment arrangement with your creditors. They will charge your account every month on the specific date you choose.
- You can also make this arrangement through your bank by using their bill pay app or widget on their online page.
- Or you can pay automatically through your credit card.
It is pretty easy to make up automatic payment arrangements through any of these plans but arranging it directly with your creditor is probably the fastest and simplest way to do it.
A word of caution; if you decide to make this arrangement through your bank, you will always have to make sure that your account has a sufficient balance to make the payment. The last thing you want to do is have your payment rejected for insufficient funds. This can start an ugly domino effect that could threaten to undermine all the efforts you’ve made to get your credit back on top.
This decision works best for those who have a regular monthly income that they can be sure will be in their bank at the right time. Those who do not have a regular income (perhaps those who are self-employed) you will still have to monitor your accounts on a regular basis to make absolutely sure that you have enough money available to cover your payments and that it is there when it needs to be.
At the end of the day, the main goal is to never be late or miss a payment so you can avoid falling behind and running into a lot more problems than you bargained for.
You’re In It for the Long Haul
When you’re under a lot of pressure from collection agencies and creditors, it is easy to think that repairing credit and getting back on track is an emergency, but your credit will be with you for the long-term. There will be some things you won’t be able to address immediately, and you will have to wait it out.
Don’t rush the process but instead, take your time, be methodical in your approach, and the chances of your clearing up your good name are quite good.
Focus on the future, not the immediate present, and you will be driven to make sure that every step you take will be sustainable and you will be able to establish and maintain your new credit score for years to come.
