A thousand foot view of improving your credit
Building your credit is perhaps the most over complicated discussion that I have to take part on on a regular basis. There is so much noise it is hard to think. It is actually pretty simple. The problems come in when people want to do it in a way that doesn’t earn their credit worthiness. People will try to default in fancy ways. They will try to hire firms to fight their financial obligations. That is when it gets complicated. That isn’t what I am going to be talking about here. Here we go. If you have never had any credit history feel free to skip down to the section Establishing Good Credit.
If you owe people money, you need to figure out a way to start paying them back. There are many strategies for that. If you are already in thrid party collections this means you are going to need to actually call them and try to negotiate something you can afford to pay. They will usually settle for half or less of what you owe depending on how long it has been in collections. Get those bad boys off your record as fast as you can. Throw money at one of them until it is payed off and then move on to the next one. I don’t recommend setting up a payment plan in most cases. I find it is better to just save up a chunk and call them up with offers. Often you can explain that you are working them against each other in a polite way. Explain that you are trying to do the best bang for your buck. They want paid. They will usually work with you.
Establishing Good Credit
If you are just starting out or are on your way to paying off your bad debt, it is time to start building up your good credit history. The fastest way to do this is with Secured Credit Cards. These are credit cards that you are being issued without good credit because you first put down a deposit equal to the balance. Usually these cards have limits of $200-$500 dollars so they require deposits between $200-$500. It is recommended that you never carry more than a 20-30% balance and that you always pay them off without carrying a balance from month to month.
Secured loans are another good way to build your credit and also show responsibility among varied trade lines. Many banks offer secured loans as a way for people to build their credit.
After that you are basically in a holding pattern until your credit has repaired. It is simple. It just takes a little bit of time and money. Once your scores get to the high 600’s you can start looking at other and better options. In the meantime, be patient. Keep learning and keep working to your goal.