Rebuilding Your Finances

You can’t rewrite your credit history, but you can rebuild it. Whether you’ve undergone a major life event or filed for bankruptcy, reestablishing your credit rating takes time and discipline, so it’s helpful to create a plan you can stick to. You’ll need to demonstrate that you’re able to pay your bills on time every month and make regular repayments to a credit line.

Here are four ways you can begin to rebuild your financial credibility.

Apply for a credit builder loan.
This is a short-term loan, usually no more than $1,000, offered by banks and credit unions to consumers who want to boost their credit score. The money borrowed is deposited into an interest bearing account, but cannot be accessed until it has been repaid. Once the loan has been repaid, the financial institution sends a good report to the credit bureaus. At the end of the loan tern, you receive the money and likely a better credit score. However, if you miss payments, it will also be reported.

Use a secured credit card account.
This is a line of credit that is 50 to 100 percent of a cash savings deposit. For example, if you put $500 in the account, you can charge up to $500 on your secured card. If you consistently make your payments on time, it could be possible to transform your secured card into an unsecured card from a credit card issuer, boosting your credit score.

Secured Card – These are cards given to customers with bad credit or without credit. They require an initial deposit (usually equal to the credit limit) in case cardholders are unable to pay off their cards.
Unsecured Card – Most credit cards are unsecured, which means there isn’t a deposit required in order for cardholders to obtain one.

Become an authorized user
As an authorized user you are able to make charges on someone else’s credit card account, using a credit card that bears your own name. The card account history of the original cardholder will appear on your credit report, helping to improve your credit score.

Make payments on time.
Even as you’re tackling existing debt, make sure you don’t add on to it by missing credit card and loan payments. If you’re not certain that you’ll be able to make a minimum payment by the deadline, contact your creditors ahead of time and explain your situation. Give them an estimate of when you’ll be able to repay your debt. If you let your creditors know in advance rather than seemingly skipping a payment, you’ll be demonstrating responsibility and credibility. Creditors may be more likely to trust that you’ll pay them back.

Once you’re on the right track again, be sure to create an emergency fund to deal with difficult, unforeseen financial situations. Creating an emergency fund with three to six months of living expenses will enable you to cover many of the unexpected expenses you may face. Learn more about emergency funds.

Confirm that your financial activity is reported to the three major credit bureaus – Equifax, Experian and TransUnion – to be sure that your repayments are positively affecting your credit score.