If you have no credit or poor credit, the process of building it may sound daunting. The Federal Trade Commission warns consumers that there are a large number of credit repair scams. If a company is offering fast repair or a new credit identity, it is a scam. Credit takes time to rebuild or establish, and you will understand why by the end of this article. However, the good news is that building credit is not as difficult as you may think if you are patient and persistent.
Collections, judgments, foreclosures, car repossessions and late payments all stay on your credit report for seven years. If you filed for bankruptcy, that stays on your credit history for 10 years. Creditors continue to report delinquencies as long as they remain unpaid. While some creditors may continue reporting a collection until the expiration date, some will not bother to keep reporting it if it has been paid and is an older account.
As late payments and collections get closer to their expiration date for reporting, they do not have as much of an impact as a new negative account. However, they do still affect your credit score.
The goal for rebuilding or establishing credit is to develop positive items while avoiding new negative items. A positive item is any account in good standing. Lenders and credit card companies report to credit bureaus regularly. As a rule, the minimum time frame for seeing a noticeable improvement in your credit score is about a year. However, you may see somewhat of an improvement after several months.
Once you have paid your credit cards and bills on time for a year with no new negative items, your score will improve. You will see more improvement as each year passes, and your score will rise even more as old negative items expire.
Be Smart With Credit Cards
It is acceptable to have a few credit cards. If you do not yet have any, sign up for one. Wait several months before signing up for another card. When you establish or even apply for multiple new credit accounts within a short time period, you can hurt your score. This is especially true if you have no credit history.
Part of your credit score is the number of inquiries on your report. There are soft and hard inquiries. To establish a new credit account, a hard inquiry is used. Soft inquiries may be used to establish a cell phone account, set up a merchandise installment agreement or establish some types of store charge cards.
When you have one or more credit or store charge cards, keep your balances low. Make payments early or on time each month. If you are struggling to pay bills and have high credit card balances, look for one card that will allow you to transfer funds and enjoy an introductory period of no interest for at least a year. Focus on paying the balance down. Using credit cards helps your credit as long as you maintain a reasonable balance and make payments regularly.
If you do not have a credit history and are not ready for your own card or cannot get approved for one, you can ask a parent or a trusted responsible friend to become an authorized user on their card. This helps you establish a payment history, which is a beneficial solution if you live at home and want to move out or want to establish other credit accounts soon.
Check Your Credit
Many people hurt their credit every year without knowing it when they do not see their annual report. You are entitled by law to one free copy of your report each year. Although there are countless services on the web offering free credit reports, many require a purchase of some type of service before issuing the free copy. The only government-approved site is AnnualCreditReport.com.
If you see a negative account listed on your report that you did not create, dispute it. When you see multiple accounts, you may be the victim of identity theft. The Federal Trade Commission offers helpful advice to follow after your identity has been stolen. Removal of erroneous negative items on your report will help improve your score.
Other Ways To Rebuild Or Establish Credit
If a real estate group or other company owns the property where you live, you can ask the owner or landlord to report your timely payments to the credit bureaus. Since they will also have to report late payments, do this only if you are confident that you will not pay your rent late.
Diversifying your credit accounts helps your score. For example, you should not have only credit card accounts or only loans. If you already have credit cards, apply for a small credit-building loan. You can ask someone to cosign if you do not qualify on your own. As your credit improves, you can try to add a car loan or a mortgage.
Look for patterns of mistakes related to your spending habits, and find ways to remedy them. Set up a strict budget. If spending becomes an addiction, there is no shame in seeking help through a therapist or support group. When you are completely committed to rebuilding or establishing credit, you can succeed.