How to rebuild your credit - Credit Cards, New Credit, Credit Score
I have been researching how to rebuild your credit after Bankruptcy or Foreclosure and I get very general answers. So I am going to the best I can to go through a step by step process for you.
What are lenders looking for?
Each time you apply for credit it will be recorded on your credit report. This can include personal loans, credit cards, mortgages, overdrafts, store cards, hire purchase agreements, mobile phone contracts and some energy contracts.
If you can build up a history of successfully repaying these in full then you will improve your credit rating and this will make it easier to get credit in the future.1st Step
The very first step that needs to be done is to get you a copy of your credit report. There many places to do this but I recommend using either http://www.annualcreditreport.com
or Free FICO Credit Score + Check Your Credit Report Online | myFICO
for your free copy. Also I recommend paying to get your current credit score also. This way you know exactly where you are starting from and have a goal to reach in your credit score.
Once this is done, you need to look at your old existing accounts that are open. These accounts you will need to focus on first because they already exist and you have a relationship already with that creditor. Focus on paying these debts off or down a.s.a.p. Try to pay over your minimum payments, negotiate your interest rates if possible also. This will help to pay down your balances much faster and efficiently.2nd Step
is to apply for secured line of credit. You can start with your bank you have your checking account with and then apply to a couple others. You will most likely have to open a savings account for your secured credit card. Your goal with secured credit is to not just have 1 card, but 3-5 cards with different banks. They may only have $100-$500 limits on them but that’s ok for right now. You will need to only put small balances on these cards and something you can easily pay off each month. It is also ok to leave a small balance on the card also and not pay it off each month. You need to have some revolving credit of purchases and payments to rebuild your credit history. Companies like Capital One, Wells Fargo and US Bank offer these types of cards for rebuilding credit. But start with your current bank you have your checking account with first. You can apply for these cards at Credit Cards - Compare Credit Card Offers at CreditCards.com
or Mortgage Rates Credit Cards Refinance Home CD Rates by Bankrate.com
. After 6-12 months of your bankruptcy or foreclosure you will get new card offers for unsecured credit cards. Some on them will have annual fees and some will not. It does not matter between the two, but I prefer no fees over fees if possible. After those first 6 months go by your score should improve by 75-100 points. Also after 6 months go by make sure to get another copy of your credit report and score to view your results. New credit makes up 10% of your credit score.
If your goal is to buy a house, rebuild your credit now while you're waiting. (three years following a foreclosure and short sale, two years following a Chapter 7 bankruptcy)3rd Step
If you are not already, make sure you are registered on the electoral roll as it can boost your score. The electoral roll is used by lenders to verify that you live at the address you say you do. Many lenders will be more likely to accept your credit application if they can see that you have lived at the same address for at least three years. This is because they believe that you are less likely to have been involved in any fraud or other behavior that indicates you could be a credit risk. Registering on the electoral roll is free and means you can vote in elections.4th Step
is to make sure that the credit card companies report to all 3 credit bureaus. The secured will not help your score if it is not reported.5th Step
has to do with your employment history. Your job history helps out with your score also. By having a full history of ongoing employment without too many changes will be looked upon favorably by lenders. They can see that you are always earning which increases the likelihood that you will repay the credit.6th Step
is to not apply for credit too often. Do not to apply to many different financial institutions because if you are turned down for credit this will be on your credit report. So, research the type of credit product that you want or need and be realistic and apply for a type that you have a better chance of being accepted for. This will reduce the number of rejected applications on your credit report, which in turn will increase the likelihood of being accepted for credit.7th Step
has to do with removing unnecessary financial links with other people. Your credit report will show your past history. If you used to share a house when you were a student or afterwards it is possible that you were part of a group of people whose names were on the bills at a shared address. It is possible that bills were left unpaid and this could affect your credit rating. Equally if you shared a bank account or mortgage with an ex-partner then your credit history will be connected. You need to stop the previous joint financial history by contacting the institutions and advising them of your new situation and check that your credit report reflects this.8th Step
is to close down old and unused accounts. If you have old credit cards or other credit products such as bank overdrafts you no longer use then close these down. Lenders may consider that you are overstretching yourself if they believe you have too many sources of credit and this will put them off giving you any more credit. Make sure to only do this to the accounts you have not used in years. If you still use old accounts do not close them. Your older accounts you use help with your credit history. The older accounts you do use are great, because 15% of your credit score is base on length of your credit history.9th Step
is to pay your bills on time. This makes up for 35% of your credit score. To ensure that your credit rating stays healthy you must pay your bills on time. You need to keep within the agreed limits of credit set by the lender and repay the debt as agreed. By doing this you will improve your credit rating. If you don’t do this your credit rating will go down and you may not be accepted for any further credit in the future.
I hope this information has been useful to you and you have learned something you may not have known.
Good Luck !