Rebuilding Credit after a Financial Challenge

Rebuilding credit after a financial challenge can seem like an impossible task, especially if you’re not sure where to start. Follow this guide to the letter, and you will be well on your way to making major strides toward bettering your credit situation, regardless of what mistakes have landed you here in the first place. As always, keep in mind that these tips are general guidelines and that every person’s financial story is different; this guide only serves as a starting point from which you can build your personalized plan based on your specific circumstances.
Rebuilding Credit

Why re-establishing good credit is important

The better your credit, generally speaking, the easier it is to borrow money at affordable rates. Additionally, good credit is one of several factors banks and other lenders look at when determining whether or not you’re likely to repay a loan. Good credit also indicates that you make timely payments on your debts and are less likely to default on loans. When you re-establish your good credit after a financial challenge, it will be easier for you to get approved for lines of credit in areas like mortgages and auto loans; in fact, some financial institutions will waive application fees if they see evidence that an applicant has restored his or her tarnished score over time. But first, let’s talk about how to rebuild from scratch.

Ways to Rebuild Good Credit After a Financial Hardship

If you’ve recently experienced a financial hardship or setback, you may be concerned about how it will affect your credit record. Don’t panic; here are some strategies for rebuilding good credit after a financial challenge. You might be pleasantly surprised to find that many of these options aren’t as hard as they seem and that even with one of these bumps in your path, you can get back on track with solid progress. And don’t forget: You have five years from when your last derogatory item first appeared on your credit report to improve your standing. The clock doesn’t start until that negative information is listed on your report (even if you were late paying those bills). Here are some strategies to help get things back on track none of them are magical, but all of them require effort and dedication. And remember: rebuilding credit takes time and effort—there are no shortcuts or magic formulas for turning bad credit into great.

Tips For Re-establishing Good Credit

Establish your credit with an authorized user card: If you’re struggling to establish credit on your own, consider getting added as an authorized user to someone else’s account. The best person to be added as an authorized user is a family member who has good credit and would be willing to add you. If that isn’t possible, talk with your bank about how to open up a secured credit card (where you put down money in exchange for building up a line of credit). Once you’ve established some good behavior, like making payments on time, ask for permission to upgrade from an authorized user card (with little or no limit) into a regular unsecured account. It might take time and patience but it is worth it.

Do’s and Don’ts Of Re-establishing Good Credit

What To Do If You’ve Experienced A Financial Hardship: If you’ve been through bankruptcy, repossession, or foreclosure and want to know how to re-establish good credit after such a financial challenge, then you probably want some do’s and don’ts. Thankfully, they exist—but you have to ask for them. Those in charge of reviewing your credit are required by law to answer all relevant questions put forth by lenders or those seeking additional credit in good faith. Asking about steps towards re-establishing good credit is fair game as long as it doesn’t interfere with their ability to make decisions that benefit them financially. Also remember that being turned down for an application doesn’t mean no one will ever lend you money again. It just means someone wasn’t willing to risk their capital on your behalf at that time. Don’t despair; keep asking until someone says yes.

What To Do If You Experience A Big Hardship

If you or someone you know has experienced an unexpected financial challenge, such as job loss, an accident, or illness, one of your top priorities should be to rebuild your credit. Your credit record can impact your financial future and help determine things like whether you can rent an apartment or get approved for car loans and mortgages. To rebuild credit after a major challenge:

1) Keep current on any outstanding debts and make timely payments.

2) Pay all bills on time (and in full)

3) Apply for loans sparingly

4) Do not open too many new accounts at once.

As difficult as it may seem at first, following these tips will help improve your credit score over time. Additionally, applying for new lines of credit while rebuilding can hurt your chances of approval.

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