Most people take good credit for granted, that is, until some life event changes things. Financial adversity is never welcomed, but it is, nonetheless, a part of life. The notion of rebuilding credit assumes your underlying financial problems have been resolved leaving bad credit but not unpaid debt. The remaining question: how does one rebuild good credit? In this post, I present several tips to help you.
The first tip is to become an authorized user on a family member’s credit card. Of course, this needs to be a credit card that is being used and paid in a timely manner. An authorized user is not contractually liable for charges on the account and is not required to qualify but will get some credit report benefit when timely payments are made. Naturally, this requires the cooperation of a family member. Note: the family member is not required to actually give you the physical card nor are you expected to use it.
The second tip is to get two or three low-limit credit cards in your name. You might think you will not qualify to get a credit card due to your credit but usually that’s not true. In fact, most people receive preapprovals shortly after resolving their debts, even if they filed bankruptcy. Once you get a card (or two or three) it’s critical that all payments be made on time. More than just making payments, the key here is to utilize about 20% of your available credit. For example, if the card has a $500 limit, you should charge about $100 per month and pay it off. The idea is not to max out the card, even a low limit card.
The third tip is to get a copy of your credit report and carefully look for errors. A Federal Trade Commission study concluded that 20% of credit reports contain errors, but other studies have found errors in up to 80% of credit reports. The law gives you the right to dispute inaccurate information in your credit report. The Federal Trade Commission has excellent resources to assist consumers in correcting inaccurate information on a credit report.
Conversely, you should not bother with payday loans. Typically, payday loans will not be reported on your credit report which means they are of no use in rebuilding your credit. Similarly, paying cash for purchases does nothing to demonstrate your ability to manage debt and repay loans in a timely manner. This may seem counter-intuitive but you really need to take and repay loans to rebuild your credit.
In conclusion, you can expect to have good to excellent credit in 12 to 24 months after bankruptcy if you apply these tips.
At the Law Office of Michael Primus we have helped thousands of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy. If you live in Contra Costa, Alameda or Solano counties and have debt problems, contact us for a free in-office consultation. We have offices in Walnut Creek, Antioch, and Hercules.