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Credit Repair Blog Series: Part 4 – How To

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Bankruptcy AttorneyHow to Repair Your Credit

This fourth and final blog of the Credit Repair Blog Series will examine how to rebuild, repair and protect your credit.  Since your credit score will be affected by the discharge of your debts through bankruptcy, you will need to learn how to repair it and maintain it.

How Long Will It Take to Obtain New Credit?

This is one of the first and most common question many debtors want to know.  Oftentimes, credit is readily available to people with low credit scores.  You can obtain credit even with a low credit score; however, you will pay high rates and fees with unfair terms favoring the lender.  Therefore, the proper question to ask is how long it will take for you to obtain credit at a reasonable rate.

Whether you can obtain reasonably fair credit depends on your own individual circumstance, and is affected by factors such as your employment stability, amount of assets you have, the number of delinquencies you have, the amount of those delinquencies, and your current debt burden.  Also, different creditors set their own lending practices, and they can change them based on the current financial climate.  Although there is no standard answer that applies to all debtors, it generally takes about 6 months to a year before a debtor can repair their credit and obtain fair credit at a reasonable rate.

Take Care of High-Priority Debts

Because of the multitude of factors surrounding the ability to obtain credit following a bankruptcy, trying to obtain new credit too soon can be risky.  Instead, a debtor should first focus on stabilizing his or her employment and income in order to start the repair process.  Securing a job and a steady stream of income will provide the foundation to reestablishing good credit.  Next, focus on getting high-priority debts, such as rent mortgage, and car payments, under control.  If your vehicle is not seized or repossessed during bankruptcy, and it often isn’t, then make timely car payments.  This can go a long way in helping you repair your credit.

Open Deposit Accounts

Open up a checking, savings, or money market accounts.  Having a deposit account with a bank is a sign of financial stability when repairing credit. Lenders will often presume a debtor with a deposit account is better able to weather financial problems and save more.  Furthermore, having a deposit account reassures lenders of two things: 1) you are attempting to save money, and 2) your account is a source they can collect from should you default on their loan.

Use Your Credit Cards Wisely

When repairing your credit, if you decide to obtain a credit card with unfavorable lending terms, make sure you pay your bills on time.  Do not overspend every month, and pay off the entire debt amount every month.  One method to accomplishing this is to store your credit card in your car, and to only use it on purchasing gas.  This way, you are spending your credit on a necessity, and keeping a reasonable cap on what you spend per month.  Over time, your credit report will show steady and proper use of revolving credit.

Close Excessive Credit Card Accounts

There are many reasons to limit the number of credit cards you have.  First, creditors can be concerned if you have too many credit cards.  This may be a sign of excessive spending.  Second, limiting the number of credit cards also helps you keep track of your debts better.  Third, studies have shown that consumers spend more if they use credit cards than if they pay with cash.  Therefore, having less credit cards may help you generally spend less.  Finally, have less credit accounts decreases the chance that you may be the victim of identity fraud.

Obtain a Secured Credit Card

If you do not qualify even for a high interest credit card, another option is to obtain a secured credit card.  A secured credit card allows you to deposit a sum of money with a bank, in return for a credit card with a credit limit for a percentage of the amount you deposit.  This percentage can range from 50% to 120%.  The deposit amount can range from as little as a few hundred to a few thousand.

Get a Cosigner or Guarantor

An alternative to obtaining a secured credit card is to have a family member or trusty friend cosign or guarantee your credit card application.  A cosigner promises to repay a loan if the primary debtor defaults.  A guarantor promises to pay the credit grantor if the primary debtor does not.  Banks and lenders would feel more comfortable extending you credit if you have a cosigner or guarantor with good credit vouch for you.

The options above are all methods to rebuild and protect your credit.  Remember that credit repair does not happen overnight.  It requires spending discipline, and patience.  Create a monthly budget, and spend your credit only on what you have apportioned for it.  Then make a full payment every month.  Following these steps will surely put you on your way to credit repair!