Help me rebuild my credit.
April 10, 2012 2:04 PM Subscribe
How do I rebuild my credit?
After a lifetime of financial responsibility and excellent credit scores, I fell significantly behind in paying my mortgage because of a layoff. Fortunately, I qualified for HAMP. My mortage payments are now manageable and the arrears have been folded back into the loan. I have one credit card balance of $7000 that I am paying off. I've never been late paying it (nor have I had problems paying other account besides the mortgage), but because my credit score is in the toilet, the bank shut down the credit card account for future purchases and I now have no credit available to me. How do I raise my credit scores? I know the traditional advice is to get a secured credit card. Is that necessary, or is it sufficient to continuing paying off the balance on the closed credit card account (and all my other bills) in a timely manner? How long will it take for my credit score to rise? If it matters, I'm currently self-employed. (Note to those who'd exhort me not to use credit in a tenuous financial situation -- I don't plan to. I'd just like to have it available to me for emergencies.)
After a lifetime of financial responsibility and excellent credit scores, I fell significantly behind in paying my mortgage because of a layoff. Fortunately, I qualified for HAMP. My mortage payments are now manageable and the arrears have been folded back into the loan. I have one credit card balance of $7000 that I am paying off. I've never been late paying it (nor have I had problems paying other account besides the mortgage), but because my credit score is in the toilet, the bank shut down the credit card account for future purchases and I now have no credit available to me. How do I raise my credit scores? I know the traditional advice is to get a secured credit card. Is that necessary, or is it sufficient to continuing paying off the balance on the closed credit card account (and all my other bills) in a timely manner? How long will it take for my credit score to rise? If it matters, I'm currently self-employed. (Note to those who'd exhort me not to use credit in a tenuous financial situation -- I don't plan to. I'd just like to have it available to me for emergencies.)
I suspect you'll be getting new credit card offers within a year. You're already doing the right thing. I don't think a secured credit card will do you any extra good.
posted by small_ruminant at 2:38 PM on April 10, 2012
posted by small_ruminant at 2:38 PM on April 10, 2012
The purpose of getting a secured credit card is to use it a little each month, and make a payment each month. It's the payment history that matters. You're accomplishing the same thing by paying your existing credit card every month. Having more cards, and paying something to each of them every month, might help. But generally, it's not worth it if it's going to cost you money. Most secured cards cost money. With store cards it's harder to buy something every month.
Your amount of debt is probably also hurting you. $7000 in credit card debt plus whatever the mortgage is, compared to your income, might not look good. But nothing you can do about that other than pay it down.
There's also the used to available credit ratio. If that card is maxed out, then you are using 100% of your available credit (depending on how mortgages are calculated, I'm not sure about that). Getting more credit and using very little of it, will help with this. One way to do this, besides more cards, is to get a line-of-credit. If you have a relationship with your bank, that can also be easier with bad credit.
posted by mad bomber what bombs at midnight at 2:41 PM on April 10, 2012
Your amount of debt is probably also hurting you. $7000 in credit card debt plus whatever the mortgage is, compared to your income, might not look good. But nothing you can do about that other than pay it down.
There's also the used to available credit ratio. If that card is maxed out, then you are using 100% of your available credit (depending on how mortgages are calculated, I'm not sure about that). Getting more credit and using very little of it, will help with this. One way to do this, besides more cards, is to get a line-of-credit. If you have a relationship with your bank, that can also be easier with bad credit.
posted by mad bomber what bombs at midnight at 2:41 PM on April 10, 2012
Some store cards, like the Target card, are real credit cards and can be used to buy things anywhere. Get one and set up your cell phone or cable bill to charge the card automatically every month. Set up a corresponding payment from checking to pay off the card. You now have automated credit history generation and you wont spend any money you wouldnt have spent anyway.
posted by twblalock at 4:36 PM on April 10, 2012
posted by twblalock at 4:36 PM on April 10, 2012
Creditboards.com has helped me a lot in this regard. There are people that know all about this stuff yacking away about it.
posted by eq21 at 4:55 PM on April 10, 2012
posted by eq21 at 4:55 PM on April 10, 2012
The forums at myfico.com are also full of knowledgable people who will be able to help you.
posted by terilou at 5:55 PM on April 10, 2012
posted by terilou at 5:55 PM on April 10, 2012
Sears has always been quick to give out credit. If you are anywhere near a Sears store, go there during a sale and apply.
posted by The Light Fantastic at 12:00 AM on April 11, 2012
posted by The Light Fantastic at 12:00 AM on April 11, 2012
This thread is closed to new comments.
However, the only way for your score to become good again is to give it time. If you make all of your payments on time for several years, your score should improve significantly.
posted by twblalock at 2:22 PM on April 10, 2012