Building Your Credit After a Financial Disaster

Whether you declared bankruptcy or opted for some form of debt relief, you have a newfound horizon of financial independence to set your sights upon. But as close as that goal, there’s one crucial hurdle standing in your way of getting there: your decimated credit score.

Let’s look at the proper steps to building credit following a financial disaster.

Credit Correction

After wrapping up your relief process, be patient but persistent in checking your credit report for negative remarks. While Chapter 13 bankruptcy and debt settlement stay on credit report for up to seven years, and Chapter 7 for ten years—your report should still reflect that debts were either settled or closed.

Don’t expect these to change overnight, but sending a credit correction letter to the involved crediting agencies will nudge creditors to reflect your past transgressions as inactive. Online Freedom Debt Relief reviews indicate this, with reviewers saying they had to be persistent with creditors to get their reports updated.

Get a Secured Credit Card

Getting another credit card might be the last thing you’re trying to do following the turmoil you went through, but it’ll be hard to rebuild your credit if you don’t show more borrower reliability. But with an undesirable credit score, you’re not going to have your pick of the litter when it comes to card options.

Secured credit cards are designed for high-risk borrowers to improve their credit standing slowly. You need to put down a deposit to open a credit line on a secured card equal to the credit limit you want to be able to spend. Use your secured credit card to pay for your most essential purchases so you never dip into more than you can afford to pay by the next payment due date.

Diversify with a Loan

If the thought of opening a line of credit made you uneasy, then hearing that you should further diversify your credit by taking out a loan isn’t going to feel any better. This is of course a dangerous strategy if you have not learned and moved on from your financially irresponsible past. Taking out a small loan that you know can pay back will cost you some money in interest, but it’ll be worth it for what it does to your credit score when you establish a few years of steady payments. And it’s not like it needs to be a hollow loan. You can use the personal loan money for something that improves your life and/or earning potential, such as a more reliable set of wheels to get to work, or investments in equipment to fund a side business.

Monitor Credit Report for Changes

When you’ve made steady payments for a while and proven you’re a more reliable borrower, you should your score start to increase. The best way to stay on pace with building your credit is to use a credit monitoring service. Doing so allows you to see how your score improves based on specific actions and also gives you insight into making future decisions to keep your score climbing. When your credit score reaches the ‘normal’ tier — at least 580 — you’ll be free of financial limitations. But don’t stop there. If you want to get better interest rates on mortgages and loans in the future, you’ll want a credit score of at least 740, which is considered ‘very good.’ After your credit score is in good standing, you’ll still want to check it for free three times annually and know which common errors to look out for and correct.

When you’ve gone through the emotional torment of debt and carried out a lengthy debt relief process, you might be content to let your score stay stagnant for a while. But building credit doesn’t have to take a lot of time or planning; it just takes follow through. Ensuring your report is updated and free of errors, and that your credit balances are paid in full will slowly but surely get your credit score to a level that no longer hinders but helps you.