Rebuilding Credit Strategies
Applying for multiple credit cards at one time is not the way to build credit when starting fresh. In doing this, you rack up numerous hard inquiries on your credit report, which sends red flags to all potential lenders.
As a result, you may be denied, and those inquiries will stay on your credit report for two years.
Whether you are trying to build or rebuild credit, you must select one credit-building method and pay your bills on time for a year before applying for additional credit. This will show the bank that you have demonstrated your creditworthiness.
How long does it take to rebuild credit?
It can take one to two years to build good credit if you follow the strategies presented to you in this chapter. You need to display at least one year of on-time payments before major bank cards like American Express and Visa takes you seriously.
Can you tell me the various ways to build or rebuild my credit?
Yes. There are ways to establish or restore your credit.
● Dispute and remove negative items.
● Use a student credit card.
● Use a secured credit card.
● Use retail store cards.
● Have credit unions rebuild your credit loan.
● Obtain a guaranteed bank loan.
● Use a merchandise card.
● Look into a co-signer method.
● Use the PRBC strategy.
● Use MasterCard and Visa cards.
● Use an authorized user technique.
Using a student credit cardThis method is useful for teenagers turning 18 and attending a community college or major university.
This is the best time to get credit because banks are more lenient about approving college students. They don’t worry about the students since they know that the parents will often come to their rescue if they default on a loan.
Because banks want to hook you in your early years, they have created two types of cards that are offered to students. Under both cards, if you are not 21, your parents must co-sign for you unless you can prove that you have the income to pay your monthly credit card bill.
The first is the regular card, commonly offered to members of the public. The second is the student card, which is typically advertised on college campuses and is sometimes mailed directly to students.
With the student card, the credit limit is no more than $1,000, as these cards are good for students to practice paying on time. Regular credit cards come with some type of gift, and you have to show proof that you are a student.
Ask the following questions before you sign a contract or send any money:
● Does your company report to all three credit bureaus?
● When will I qualify for an unsecured line of credit?
● What are your credit card fees?
● Talk with your major local banks and credit unions.
What is the best way to find secured cards?
Banks are known to issue secured cards with low limits:
● Capital One
● Orchard Bank
● New Millennium Bank
● First Premier Bank
What about retail store cards?
This method is useful if you are building credit for the first time. Retail cards, like those at Macy’s and JCPenney, are easier to get than a major credit card.
The reason these retail cards are easier to get can be narrowed down to the fact that they grant lower limits and the card is tied to merchandise in their store only.
You apply for a card and then make your payments on time for six months. You can then pull your credit report and check your payment history.
How about the credit builder loan – credit union?
This method is suitable if you are building or rebuilding your credit files. You know how important it is to have excellent credit. A credit builder loan is your key to establishing or reestablishing, your credit.
Here’s how it works: the credit union loans you money that is deposited into a certificate of deposit (CD). You make regular payments that are reported to credit-reporting agencies.
Once the loan is paid off, you get the certificate of deposit and have a better credit score. The benefits of this program are that you don’t have to give any money up front, the credit union reports to all three credit bureaus, and you establish a small saving at the end of the 12-month installment period.
Can I use a secured bank loan?
This method is useful if you are building or rebuilding credit for the first time. Save $500 to $1,000 and then visit various banks with your credit report in hand, asking them whether they do secure passbook loans based on your savings.
If they agree, ask the loan officer if there is a prepayment penalty, what the interest rate is, and what credit bureaus they report to. Apply for a 12-month passbook loan, then, with the loan from the first bank, go to another bank and open a second passbook loan with a 12-month pay period.
Then, wait three weeks and go to a third bank and repeat the process with the loan from the second bank. Now you have three loans at three different banks for a 12-month payment plan.
Now, start making payments with the loan you received from the last bank. After six months of on-time payments, check your credit report to make sure the loans are being reported correctly. Congratulations, you have just established superior credit with three bank installment loans.
Can I use a merchandise card to build credit?
This method is used when you are rebuilding and building credit for the first time. Using a merchandise card could help you establish a high credit limit fast. Go to Myjewelersclub.com
Once you have made your purchase, the organization will issue you a $3,500 line of credit to purchase more items. The best thing about this card is that they report to Equifax.
You also establish an instant credit trade line, which looks good on your credit report. Besides, there is no credit check, so you avoid having an inquiry on your report.
What about using a cosigner?
Cosigning means that due to your lack of credit or poor credit, the bank would like someone with good credit to back you up in case you default on the loan. This method is suitable when you are trying to build or establish credit.
Talk with a family member or a friend to have them cosign for you since you don’t have any credit. Also, let them know that you are trying to build your credit.
Now, if you stop paying on loan, the bank will go after your cosigner for the balance of the loan. Start with a small loan at the bank and make your payments on time for a year, paying off the balance so that you can release your cosigner.
What is PRBC and how do I use this company to build credit?
PRBC is a non-traditional, credit-reporting agency. They track the way you pay your rent, utilities, cable, and cell phone bills.
From there, they compile a payment history report that can be used as supplemental information, along with your credit report, when lenders are trying to decide on whether to issue the credit to you.
FICO has partnered up with PRBC to provide Expansion scores based on your payment history with PRBC. These Expansion scores are only issued to the lenders upon request.
Besides, not all lenders use PRBC to consider your creditworthiness, so you must ask them to pull your PRBC report when applying for credit. To get started with PRBC, you can sign up with them and start reporting your good payment history from your rent, cable bills, utilities, and cell phone bills.
PRBC will then charge you a small fee to verify your payment history and include it in your file. The good thing about PRBC is that your credit report with them is free, and you can get a copy at any time. This method is best if you don’t have any credit or a thin credit file.
When should I apply for a major Visa or MasterCard?
This method is right after you have established at least two years of solid credit history. Your credit report should have one small credit card and one installment loan.
With your mixture of credit trade lines and two years of solid payment history, it’s time to go for the big bank credit cards like Visa and MasterCard.
The FICO scoring model really likes to see consumers with credit cards from major banks. Go to a major bank, like Bank of America, and ask them what type of credit score you would need to qualify for their MasterCard. Then apply to create excellent credit.
What is an authorized user?
Have a friend or family member with good credit call up their credit card company and have them add you to their account as an authorized user. The credit card company will issue a card in your name.
Once the card arrives at your friend’s house, he or she will cut the card up. Wait a month later and check your credit report to see if your friend’s entire credit history for that card is on your credit report.
This is a fast way to build credit within 30 days. Now, the downfall to this method is that if your friend makes a late payment or refuses to pay, your credit report will show the same harmful activity, therefore damaging your excellent credit rating. Do consider the potential consequences carefully before moving in this direction.
Rebuilding credit is vital because the creditors like to see a good payment history after damaged credit. Take your time and pick the best rebuild the credit products that will assist you in achieving your credit score goals.