Re-establishing Credit
Re-establishing your financial life after debt difficulties, monetary emergencies, or a bankruptcy can be a difficult and frustrating thing. Most people are not prepared to deal with the consequences of financial mishaps. Meanwhile, effectively overcoming such problems can impact so much more than just your credit, like the cost of insurance, finding a place to live and even getting that special job.
But first, let’s start with a few basic steps you could take when re-establishing credit.
- Perform a budget analysis. Experts often recommend that people track every cent that they spend for a month. (Some recommend up to three months.) Get a pocket sized spiral bound notebook and pen. Get a receipt for everything and save those. Track every cash withdrawal from an ATM to show where the cash went. However you do it, make certain that at the end of the time you can account for every cent of income. (Yes this process can be tedious and not terribly amusing. If it makes it easier for you, make a game of it and challenge yourself to see how well you do.) Sit down when you will be uninterrupted and review you list. It is easier to assess your budget vs. your goals when you have an accounting like this. Then assess your expenditures in term of needs vs. wants. This is the time to be honest with yourself. Needs are only those expenses that keep house and home together and maintain your employment – mortgages/rent, utilities, transportation to work, daycare or child support, insurance, basic groceries, etc. Wants are everything else – entertainment, eating out, cigarettes, alcohol, cell phone, internet charges, cable, trips to the coffee shop, vending machines at work, etc. Because the best decisions are made when a person is well informed, knowing exactly where the money goes makes it easier to make those small adjustments on a day to day basis that will improve your financial outlook. Once you have a clear picture of where your money goes, it is easier “in the moment” to recognize and change those unconscious spending habits that are not in our best financial interest.
- Prepare yourself for credit. As you have already learned the hard way, life can take some nasty turns. Prepare for the unforeseen by starting a savings account. Even if you can only deposit a small amount every month, it is a beginning of an emergency fund. Should you have unforeseen expenses or a gap in employment, you will have funds to cover your obligations. Make every effort to leave the money in your savings account alone. Depositing money into a savings account and leaving it there gives a much more stable financial picture than depositing $100 one week and withdrawing $50 the next. Important note to remember: If you budget is too tight to set aside any amount for savings, it is too tight to take on a credit obligation, period.
- Do your research. Check out any number of websites like Bankrate.com that compare credit card features. Do not randomly apply. Seek out a company that will deal with people who have difficult credit histories and find out their guidelines and costs before you apply. Multiple credit inquiries look bad on a credit file so search first to reduce the number of times that you apply. In fact, the results of a recently released study conducted by Experian Consumer Direct comparing consumer credit behaviors for those with higher than average and lower than average credit scores; indicate that those with higher scores have less than half the number of inquiries listing on their credit reports.
- Once you have obtained your first new credit be shrewd in its use. Treat it like gold. It is the key to turning your credit future around. Never be late on a payment – if you are sending them by mail, do so a minimum of 15 days prior to the date they are due and contact the creditor’s customer service department to confirm receipt and posting of your payment. The Experian study noted earlier also makes mention that those with lower credit scores have significantly greater number of late payments listing on their credit reports. The study also suggested that consumers never use the entire credit limit; as maxing out on available credit can have a negative impact on the credit score, as study participants with higher credit scores by and large made use of less of their available credit than those with lower scores. Do not open multiple accounts. (If you have been effective in your research you should not have the need to open multiple accounts).
- Get involved in a frugal way. In any community, there are a number of activities that are minimal in cost or free. There are a number of organizations and clubs that have activities or need volunteers. Not only is this easier on your budget, it will increase the number of people with whom you come in contact. Sometimes broadening your focus beyond your current problem helps you see that everyone has challenges.
Please remember that your current problem is just that – current. Time will eventually improve your credit as the negative references get older and older and then drop off your report. At the same time, your new reference will show that you have begun to turn your credit life around. With a little effort, education and attention to details, it will get better.
