I know we O'Frugals don’t like the idea of credit cards we love cash but if you want to buy this car, rent that apartment or get a loan to start your new frugal conscious business then get out there and get busy building your credit.
First of all has your credit been damaged? It be saved. Claim a free credit report from here. www.ftc.gov/freereports You can dispute any accounts that they have. Simply write a letter with documentation and ask that this be removed from your report.
Worst thing on a Credit Report is a Bankruptcy. Try not to file unless there is no other option. Whether you have filed a Chapter 13 (13 is a pay back plan with just some debts eliminated) or Chapter 7 (everything is eliminated except for a few essentials), it doesn’t shine a gleaming light of competency on you and your ability for managing your finances. Regardless of why you were faced with filing, this entry stays on your credit report for 7-10 years! AGH! So you just got to deal with it leave the past in the past and start all over again!
With a bit of work within 18 months you can have your credit score up in the high 600 range. Your credit score can range from 300-800+, and if your score is below 600 for any reason it’s time to take action.
So do it now - arrange automatic payments for every card, bill and loan. Lateness can cause 100 points. Pay those library fines and parking tickets on time.
You need 2 types of credit to build your rating. Revolving credit aids quicker results than installment! It is possible to see results within 30 days by reducing a credit card debt.
Revolving - credit cards, home equity lines of credit
Installment - car loans, student loans, mortgages
Revolving
- Store Credit Use only a small portion of your available credit and don’t apply for too much credit at once. Start out slow, and make some small purchases at stores who will grant you a small amount of credit at a reasonable rate. Electronic, appliance, and furniture stores are usually good to start building credit and will charge you a reasonable rate. Make sure they report back to the 3 main credit bureaus Equifax, Experian and Trans Union. When buying an item stay within your budget and make a down payment of half. Then pay off the rest within 6 months or earlier. Do the same thing at a furniture or appliance store. Doing this you can have 3 - 4 good entries in your credit file within 9 months!
- Credit Card Credit is measured by the gap of how much you have owed on the card and the cards limit. So keep within 30% of what you are allowed. Some credit card companies forget to notify the credit bureaus of your maximum limits allowed so look out for this on your credit report. At the beginning get a small limit credit card and only charge very small amounts. Pay off your balance in full each month, and pay it off early if possible. If you already have credit cards pay off the highest-rate card first. It is better to have small amounts spread over several cards than one large amount on one card. Use an older credit card that you have – the older the credit the better!
- Secured Credit card Cant get a credit card then go for a secured credit card or deposit based credit card – most will convert in 6 months or less if you abide by all the requirements. You put down a deposit from $200 to $500. Treat it like a credit card and pay it off monthly. Make sure you get one with no application fee and a reasonable annual fee, that reports to the major credit bureaus Equifax, Experian and TransUnion and converts to an unsecured card after a few months of on-time payments.
Maxing out your credit cards hurts your credit score. Don’t charge more than 30% or so of your credit limit, always pay the balance off in full each month.
MYTH: You don't need to carry a balance over or pay credit card interest to build your rating. The leading credit scoring formula doesn't distinguish between balances that are paid off and balances that are carried month to month.
Installment
- Bills Pay your bills on time – sounds easy but doing this helps a lot. As soon as the bill comes in the door pay it online if you can. Set up direct payments out of your bank account.
Mortgage - Make sure that you pay on time or early on house or car. This will improve your credit score.
- Car loans Great way to build credit but you might need to pay up to 21% interest at first. An idea would be to trade that car in later when your rating has improved and refinance for a lower interest rate you can keep doing this year after year until you are happy with the amount you are paying. Make sure your though that there is no pre-payment penalties on the loans! And try to make a down payment.
- Student loans Student loans can be used to build your score. Make your payments on time, all the time, and try to pay more than you owe whenever possible. Pay double or triple the amount if possible
If you don’t have a loan it might be wise to take one out. Applying for and getting an installment loan helps build your credit rating. Take it out for a minimum amount for 2 to 3 years
If you do all the above and follow the basic instructions you will get an 680 score plus. Monitor your credit reports during this time. You can request one credit bureau at a time every 4 months.
O’Frugalers don’t pay for something that you can get for FREE. Go to the Federal Trade Commission’s site here to get the full details of getting your free credit reports: www.ftc.gov/freereports
On the report check for: proper credit card limit is recorded, no sign of any credit misdemeanors older than 7 yrs, misspelled names, wrong addresses, accounts that are not yours, late payments that you can get negotiated off.
With a little determination and effort you can build and increase your credit score even after filing bankruptcy!
If you are having trouble and need more help contact your local church or check here www.ftc.gov/bcp/edu/microsites/moneymatters/index.html
For government advice check http://ftc.gov
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