Easy Steps to Building Good Credit or Re-establishing Credit

Without a decent credit history it’s hard to open new credit accounts but without ever having credit it’s hard to open credit accounts in order to create a credit history. It’s all very frustrating and confusing but not impossible. Here are some tips that you can use to re-establish yourself or to get started in the credit world.

 

Open a savings account and a checking account. Having bank accounts puts you in the financial mainstream. Lenders will not take you seriously and give your requests for credit consideration if you do not have at least a savings account.

I recommend finding a bank that allows its customers to utilize online banking services. Having your accounts online will help you to keep track of your account activity. You can transfer funds from one account to another and even pay bills online. I personally find this to be a invaluable service. Also, most banks offer a Visa or Mastercard check/debit card attached to checking accounts. This will get your foot in the door as far as showing your bank that you are responsible with your accounts and it may help them to issue you a real Visa or Mastercard in the future.

If you have had problems in the past with a checking account and you are trying to get back on the right path go to a bank and explain your situation. Tell the teller or bank representative that you have had problems and have them look you up in the Chexsystems database. You need to make sure that all of your problems have been paid off, resolved and cleared. The usual wait after all Chexsystems issues are cleared up is 6 months, then you will be able to open a new checking account. Banks differ on their policies so call around and find a bank that will accommodate you.

Most banks will allow you to open a savings account even if you have had problems with a checking account.

Next, get your credit report from all four of the major credit bureaus. I show you how to do that here on my site. How To Get Your Credit Report.

Now you need to read your credit reports and see how you look in the eyes of potential lenders. I will show you how to how to read and understand your credit report here, How To Read Your Credit Report.

Typically, a credit report includes identifying information about you, such as your name, address, Social Security number and birth date. The report will also list any credit accounts or loans opened in your name, along with your payment history, account limits and any balances you owe.

If you have recently arrived in the United States you may not have a report or it may have little information. If you’ve had credit problems, your report will list them.

If you find any accounts listed on your credit report that either don’t belong to you or that are outdated you should dispute these accounts and naturally, I show you how to do this on this site Cleaning Up Your Credit Report. This link will show you what to look for and it will also give you a sample dispute letter to send to the credit bureaus.

Negative information, such as late payments, delinquencies, liens, and judgments against you, should be dropped after seven years. Bankruptcies can stay on your report for up to 10 years.

You should update your personal information with the credit bureaus. Update and list your social security number as well as your phone number (some lenders will want to call you to verify information) your current as well as past employers, your address and past address. Having the same employer and address for several years makes you appear more stable in the creditors eyes. Creditors use this information along with your credit score and FICO score when determining your credit worthiness. Be sure to read my page about credit scores and FICO scores.

Make sure that your report is up to date with all of your accounts that you’ve paid on time. Some lenders don’t report regularly to the credit bureaus and you’ll find that some don’t report to all three of the major bureaus, Equifax, Trans Union and Experian. (Another reason that it’s important to get copies of all three reports.)

To update this information simply send a letter to the credit bureau. If they don’t respond send a second letter with a copy of your latest statement and canceled check.

I know that this may seem time consuming but it’s a process and you can’t cheat on any of the steps so…JUST DO IT! Once all of this is done you can begin a campaign to establish some new and healthy credit.

Before we begin I want you to understand that every time that you apply for credit that you are making an inquiry on your credit report. Inquiries will stay on your report for 6 months. If you apply for 10 different store cards to get this going not only will you most likely get yourself in trouble with store cards but you will have a lot of unnecessary inquiry marks on your credit report. Some lenders may turn you down based on the fact that you have asked for too much credit in a short period of time so take it easy. Do this sensibly.

The easiest credit cards to get are department store cards and gasoline cards. Retail accounts are not only easy to get but the interest rates are always very high. Most start out with an APR (annual percentage rate) of 21% or higher. Please apply for one at a time and when you are approved for this type of credit you must use it only on items that you can pay off in full each month. I advise my clients to not even carry them on their person to avoid the temptation of using them. You only need one store card and one gas card.

You will find that retail credit cards are much easier to get than a regular Visa or Mastercard.

I like to call this next section “Fun with Loans”. You can play a little game with loans to build new credit. After you’ve been a customer with your bank for a while, 6 months or so, you can ask them for a small loan to be paid out over time. I recommend that you be very honest about why you want the loan, tell them that you are trying to build up your credit report with accounts showing good payment histories and then marked as paid in full. You only need a small loan to start.

Your bank may ask you to secure your loan by depositing the amount that you want to borrow in a savings account. If that is the only way that they will help you do it. When they report this to the credit bureaus it will help to build a positive payment history. The next loan may not need to be secured. I recommend that you do this several times and in fact after you have paid off a loan or two you could apply for a small loan at a different bank or credit union.

This really does work, give it a try.

Talk to your bank and see if they can help you with a secured Visa or Mastercard account. These are Visa or Mastercards that have a balance of whatever amount you deposit into a savings account making the account “secured” by the savings account. Most banks offer secured credit cards these days and the principle here is the same as the loan trick. Only charge as much as you can pay off in full each month. If you go through a lender from the internet or a brochure that you pick up somewhere you are liable to find that they will require a hefty start up fee. Stick with your bank or another local bank if you can.

There you have it! You have established credit. Congratulations! If you pay attention and take good care of these accounts you’ll be eligible for a regular credit card and if you take care of that you’ll be eligible for all sorts of other credit.

In order to build a healthy credit report you need to always pay all of your bills on time each month. I recommend paying your bills online through your bank account. It’s usually free (if it’s not shop around for a better bank) and payments post to your accounts much more quickly than mailing them. Also by having your accounts and account activity displayed before your eyes it’s much easier to keep track of what you are doing.