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Establishing or Reestablishing Credit
The MMI Online Articles are designed to inform, assist, educate and alert consumers.
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If your credit score is less than desirable, there are many things you can do to improve your standing. One is to be patient. While most credit scores do not change more than a few points from month to month, time can still be the best cure for less-than-perfect credit. The federal Fair Credit Reporting Act (FCRA) states derogatory information can remain on your credit bureau file for 7 years from the time the account is placed for collection, charged to profit and loss, or subjection to any similar action.
You might also:
-try to negotiate. Contact your creditors; if you are a valuable customer and your blemish is out of the norm, you may be able to convince them to clear your record.
-bring your accounts current. Start paying regular full payments. The length of time it takes to re-establish your credit depends on the state of the delinquency of your accounts. Generally, it takes about one year of regular full payments to re-establish your credit with your creditors.
-get help. Ask someone responsible to put you on their account as an authorized user. They can then request that the creditor report the account activity on your report.
If you're trying to establish or reestablish credit, it may also help to obtain new credit and use it wisely. Open a checking and/or savings account. Creditors look at them as evidence that you are able to handle money. You’ll also need a record of stable employment and have lived in your current residence for at least six months.
Next, open a charge account at a local department store or apply for a gasoline credit card. These are often stepping stones to other forms of credit. Be sure to make regular monthly payments on time to establish a good credit rating.
When trying to establish credit, you may want to consider taking out a small loan from your bank or credit union. Deposit the money you borrowed into a savings account. Immediate, while you pay off the loan, the interest you are earning on the deposit will help cut the cost of the loan.
Secured credit cards are also available. With a secured card, you deposit a specified amount of money in a financial institution which then issues you a bank credit card (Visa or Mastercard). The amount you deposit becomes your credit limit. With timely payments, you credit limit may increase and eventually the account may no longer need to be secured by your savings.
Establishing credit is only one step. Credit is not free, so use it wisely. One question you should ask yourself is "How much credit can I afford?" A good rule of thumb is to own no more than 20% of your net income for consumer debt excluding mortgage or rent. Yes, this does include your car payment.
Remember, credit isn't a right, it is a privilege that you should protect. The key to establishing a good credit rating is to use the credit you have responsibly and make all payments on time.
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