Happy Humpday, y’all! 😊
I hope my last post was helpful and that you made it to the end without dozing off! I promise that this one will be shorter.
As you can imagine, after my first big debt payoff my credit was…less than stellar. I distinctly recall getting turned down for a store card and thinking “WHO GETS TURNED DOWN FOR A STORE CARD?!” I didn’t know how bad it was until the first time I signed up for Credit Karma (my favorite credit score tool, ever!). TBH, before I saw my numbers for the first time I didn’t even know credit scores could BE that low. I wish I was kidding y’all. I’m not.
Part of the problem was that I didn’t understand my credit and I had spent a fair amount of time in la-la land not knowing that the accounts in collections were ruining my score. Ignorance is bliss, but it does you no good when it comes to your personal finances.
Maintaining good credit is great, but if your score is already in the hole this one’s for you.
Paying off debt and rebuilding your credit at the same time is possible- I did it! However, if you’re not already paying off your debt that’s where I suggest you start. Any accounts in collections, delinquent loans or credit cards that carry a balance are HURTING YOUR SCORE. Even making the minimum payment on these accounts can boost your score in the short and long term, but obviously the sooner they’re paid off, the better.
The best way I’ve found to rebuild your old, bad credit is to (as stated above) rectify negative accounts by paying them on a regular basis until they’re paid off AND establish new, good credit. For me, this meant opening a secured credit card and it’s something I highly recommend. Because it’s difficult to get approved for new lines of credit with bad credit history you put up a certain amount of cash as collateral. The cash gets deposited into an account with your financial and the funds are held for the life of the card. Your limit on this card is whatever amount you put up as collateral and if you exceed your credit limit or fail to make payments, the held funds are applied to the card which is then shut down. I got my secured card when I was 23 years old and it was my first credit card ever! With it I’ve been able to raise my score several hundred points. I went directly through my financial because they offered a secured card with a decent interest rate (18.99%), but doing research is never a bad idea! Nerdwallet has a great comparison on secured cards here.
Once you’ve established some positive credit history and begun to rectify any negative accounts your score will steadily rise and lenders will be more likely to approve any future lines of credit. Bear in mind that the better your credit is, the more you’re approved for and the better your interest rates will be! If you have collections (like I did) that you’ve paid off, they’ll eventually fall off your credit history- typically 7 years. This is also the standard for bankruptcies: 7-10 years is the magic time frame.
I’ll probably say this ‘til I’m blue in the face, but if you haven’t already hopped on the Credit Karma bandwagon you better jump on that like a duck on a junebug! In addition to tracking your score, Credit Karma keeps an eye on your personal information too and alerts if/when there are new inquiries or accounts opened under your social security number which is particularly helpful if YOU didn’t open the account.
Have any of y’all out there gone through the process of rebuilding your credit? How do you feel about secured credit cards? Let me know in the comments!