How to "Rebuild" your credit

There comes a time in every one's life when we just can't seem to make ends meet. There are also times Murphy's law smacks us in the face. Let's face it, bad things can happen to good people. Sometimes those bad things can have a negative impact on your financial situation and your credit. When something bad happens, whatever the situation may be, it can feel like you will never be "credit worthy" again. The good news is you can get back on track by following a few simple steps.

Get Current on Your Bills
This article is assuming that you are recovering from your "financial disaster" so I am not going to spend a lot of time on this section. It deserves a post of its own so I will work on it. However, it is important to keep in mind that it will be difficult to "rebuild" your credit if you can't pay the bills you already have, so if you are behind do whatever it takes to get current.

Check Your Credit Score
Go online and find a site where you can get a credit report and a credit score. Getting a credit score will give you a starting point. Sign up for a program where you can monitor your credit every month. Most of the credit monitoring services will also give you tips on how to improve your score. Follow them. I've seen clients increase their credit scores dramatically within just a few months by simply following the tips.

Get a Secured Loan or Credit Card
This may sound crazy, but the only way to build good credit is to borrow some money and establish a good payment history. The hard part is that most banks won't lend you money if you have a poor credit score. A secured loan or credit card is the way around that. The way it works is simple. Save some money, put it in a savings account and then use the savings account as collateral for your loan. I have seen banks issue secured cards for as little as $300 in collateral, term loans usually require about $1000. The most important thing good payment history and some banks will consider a good payment history with their institution enough to issue you unsecured credit or give you lower rates on loans in the future. Usually small banks or credit unions are easier to deal with when you are trying to rebuild or establish credit.

Monitor Your Progress
Use your credit monitoring tool to track your progress until you are satisfied with your credit score. It's even a good idea to use the tool going forward to keep your score at the level you want, but the fun part is watching your score grow every month because of your hard work.