Re-establishing good credit: Steps to take

1. Obtain a secured credit card. Secured credit cards can be used exactly the same as unsecured credit cards, the difference being that with a secured card, your credit limit is determined by the amount of money you have chosen to deposit into the account and not by the bank issuing the card. Some major banks who issue secured credit cards are: Capital One, Orchard Bank, Bank of America, Wells Fargo, First Premier Bank, Chase Bank, New Millenium Bank and U.S. Bank. You should also check with your regular bank or credit union to see if they offer an unsecured card. Once you have obtained the card, you should use it for small purchases and pay off the balance in full each month. This will enable you to re-establish a good payment history, subsequently improving your credit score and overall creditworthiness.
2. Keep track of all non-installment accounts, such as rent, utilities and cable. You need to present these records to the credit bureaus, at which time you will receive acknowledgement of these efforts. This can be shown to potential lenders to show your ability to pay bills on time.
3. The Fair Credit Reporting Act guarantees consumers access to one free credit report each year. You should obtain your free copy in order to determine that whatever debts you settled now have the proper notation on your report (specifically that they are now paid). You can obtain your free credit report at Annual Credit Report.com. (In addition, if there are items that should not be appearing on your credit report, you need to dispute these items, which can be done by going online to any of the three credit bureaus and clicking on the menu button that indicates “Dispute” and follow the instructions indicated) While there are a number of companies that advertise “debt or credit repair” they often charge inflated prices to do what you can do for free. You will need accurate records when you are filing your dispute. The party with which you are filing the dispute has 30 days to respond to the credit bureau’s inquiry. If they fail to provide adequate information for their side of the dispute the item, which is taken off your report at the time you file the dispute, will remain deleted from your report. If, however, the creditor does provide proof that the debt is yours, the item will reappear on your report.

1. You will need to create a realistic and working budget. A budget is a spending plan to help you forecast and control your expenses. Ideally, a good budget will be realistic and allow you to maintain a positive debt to income situation. (Note: while many people feel that having a 50-50 ratio is acceptable, in order to establish a comfortable financial situation, your income should exceed your spending by at least 25% or more)
2. To help you create that type of budget and situation, you need to start tracking your expenses. The best way is to record every expenditure for at least one month. You may want to forecast a figure you think you will spend. Everything, from a pack of gum to a dinner out should be included. At the end of the month, add all expenditures and see how close to your forecast you came.
3. If you appear to be operating in a negative situation financially, you may need to cut spending, change jobs, work more hours or get a second job until the finances are under control. You might want to consider a home-based business if you have small children at home. This will take some sacrifice and rearranging personal or family time as applicable. You may want to consider developing a network of friends or neighbors who can provide assistance to you and vice-versa. Check with your church or other organizations to which you belong for assistance.
4. Establish financial goals. Short term goals should be completed within 6 months to a year. Mid-term goals should be completed between 1 and 5 years and long-term financial goals should be completed after 5 years or more. These goals should be realistic, measurable and flexible. For example, you may want to start a savings account. Determine realistic figures for a monthly payment and a time frame to get to a total amount. Add the monthly figure to your budget. Make sure that it’s an amount you can afford to save and open the account as soon as you can to get started. Once you have started your savings account, try to make your deposit on the same day each month and measure your progress against the original total amount goal that you set. Keep in mind that if you cannot maintain that schedule, you should not stop saving; merely lower your goal temporarily until you can reestablish the original amount. As this becomes easier for you, you can then start to establish some mid-term and long-term goals. Remember to involve your spouse and/or family members in the budgeting and goal setting processes and keep them actively involved in assisting you.

1. The past does not necessarily predict the future. In the past you may have acted irresponsibly. Perhaps you over-extended your credit and means to pay or did not pay your bills on time. These actions hurt your creditworthiness and created a negative situation for you. By taking actions to settle your debt and now by following some of the steps above and maintaining good financial practices, your credit score will improve, lenders will be willing to extend you new credit and goals such as owning a home or planning for retirement are not out of the question.
2. Take it one step at a time. Financial problems don’t occur overnight, nor do the solutions to those problems. By understanding how you got to the negative situation and now understanding the positive steps you can take to restore good credit and financial practices, you are already on the road to success. Some clients have found that daily positive affirmations are a big help to maintaining a good attitude. Others might seek counseling either short or long term to assess and perhaps change behaviors. Whatever way works for you, the main thing is to keep asking three important questions of yourself: 1) Where am I now financially? 2) Where do I want to go? 3) How am I going to get there? Honest answers to these questions will assist you in designing a financial map that will make your journey rewarding and successful.

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