Three Things You Need To Do When The Credit Dust Clears
Posted on: 12 February 2016
If you have just started to recover from a period of bad credit, late payments, and overdrawn accounts, congratulations -- there is nothing like the feeling of relief and peace when you realize that you can now start to rebuild your credit. Whether your change in luck was due to getting a better-paying job, or even declaring bankruptcy, now you have the chance to build a strong, positive record. However, no matter what has happened in the past, there are three things you need to do to when you find the bad-credit cloud wearing away.
Get a Secured Card
There's a good chance your old credit cards were closed or at least put on hold for the duration of your bad-credit episode. If your accounts were closed, see if you can apply for a secured card. Many secured cards are made exactly for people like you, who went through a bad patch but are now on the mend. You'll put down the money for the credit limit (in other words, if you are issued a credit limit of $X, you'll have to give the bank $X, which they'll hold for as long as you have the secured card); the bank will use this to cover any unpaid balance if you neglect to pay your bill, though you need to do everything you can to avoid that happening. If you don't pay, and the bank uses the deposit, your card will be closed.
If you can get a secured card, use it every month for something small like a few items at the grocery store. Then, pay that cost off immediately. Use the card to get a record of on-time payments going again, but don't charge so much that you won't be able to pay off the card during lean months.
If you still have your old credit card accounts but are making payments on those to pay off debt, you can still try to get a secured card. However, it might be prudent to arrange for a very low limit, maybe just enough so that you can use the card to rent a car in an emergency. If you're making other credit payments, the last thing you need is an additional card choking up your budget.
If you still have your old card accounts and they are paid off, very carefully use those cards to start establishing stronger credit. As with the secured card, charge only a small amount each month and pay it off immediately, in person at the bank if you can. If the card is from a bank or company that does not have a physical branch in your city, use the phone or online system to make a prompt payment so you don't forget to pay.
Get a Credit Builder Loan
Talk to your regular bank about a small loan that is meant specifically to build credit. What happens when you get a credit builder loan is that the bank gives you a small amount of money that you pay off with interest in a set number of months. So if the bank gives you $X, you place $X in your account, and every month take part of the $X and repay it to the bank with a little interest -- rates are usually very low. So this loan does not really cost you a lot, and the on-time payments help build your credit. Just remember not to spend the $X that the bank gives you on something else -- use it so you know you can make the payments.
Start an Emergency Fund
Even if you had a fund before, if you got into a situation where you couldn't pay your bills, that means your emergency fund is empty. Start now to build a new one. Even if you can put away only a few dollars a week, do it. Treat the first $1,000 as crucial -- get to that amount as quickly as you can.
If you want other steps for recovering after your credit situation calms down, consider debt counselling. They can not only help you when you're having trouble, but they can also guide you as you rebuild your financial life.
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