Following business or job losses, medical emergencies, family crises, or other unforeseen circumstances, it is not uncommon for people to fall behind on payments. If you have fallen behind on payments, filed bankruptcy, lost your home to a foreclosure, encountered a lien on your property, or suffer financial difficulties, you may be wondering how to repair and restore your credit.
According to the U.S. Small Business Administration (SBA.gov), there is hope. A good plan can help you re-establish a good credit rating. Here are a few tips:
- Review your credit reports and start repairing them by either working on them yourself or hiring a reputable credit restoration company. You can obtain free credit reports at http://annualcreditreport.com. If you find errors, be sure to dispute them. That is your right under the Fair Credit Reporting Act.
- Establish at least three positive trades (accounts) actively reporting on each of your reports with Equifax, Transunion and Experian the information that you are making regular payments. (A loan that is paid off does not account).
- If you have no active credit, speak to your bank(s) to obtain secured credit cards. A secured credit card works like any other credit card when you make a purchase. The difference is that the bank issuing it will require you to provide a non-interest-bearing security deposit, which is held as collateral for your account. A secured card works like a credit card, allowing you to pay it off in full each month or over time. To get started, you’ll need to provide a minimum security deposit and may be able to provide that deposit over time. After the bank receives your deposit, it will issue you a card with a minimum credit line. If you want to increase your credit line, you may then deposit more than your minimum security deposit, and your credit line would increase equal to your additional deposit. In essence, with a secured card, you are advancing yourself money to fund your purchases, while the bank is tracking your financial actions to validate your current ability to manage a credit account. As the bank reports your good payment behavior to the credit bureau, you will begin repairing your credit score. If you manage your secured accounts properly, you may later earn a credit line increase based on your payment history and creditworthiness—with no additional security deposit required.
- When using secured credit cards, be sure to keep your debt-to-credit limit ratios on those cards at no more than 30%.
- Beware of using high-risk lenders who offer secure cards. Using a high-risk lender shows other lenders that you are a high risk. Instead, open a secured card from a mainstream lender that reports payment history to the three major credit agencies — and then use that card to help rebuild your credit worthiness.
For more information on secured cards, we found that the Small Business Administration, SBA.gov, offers a link to an independent blog with information on secured cards that rebuild credit. Click here to connect to that blog and access more information on this topic. Daley Law is providing these links for your reference. Like the SBA, Daley Law does not endorse any non-government websites, companies or applications and cannot attest to the accuracy of the information provided by third-party sites.
If you have questions about credit repair, feel free to contact Daley Law. You can use the simple Ask a Question form on our Website. Or you may call us at 321.504.9935.
We look forward to hearing from you.