After you have completed debt litigation – win, lose or draw – you want to try to reestablish your credit report. Depending on the things that led to the problems in the first place, this will take time. Of course the single best step you could take is to make more money, and in an upcoming issue I will address that question in more detail. For the present, let's focus on a very simple technique you can use to start the repair: get a secured credit card.
Many banks will issue credit cards by savings accounts you have with them. Ask around and find one that does. This part of the process is not cheap, however if you have gotten the problems that damaged your credit in the first place under control, it will be an investment worth making – and the cost will go down fairly quickly.
To do this, you will need to find a bank that offers secured cards – not ATM or debit cards, but credit cards – and set up the bank account that secures the card. The money you use for this will not be available to you as long as the card is secured, and that very well may be for the entire life of this card. So make sure it is money you will not need.
Once you have the card, use it every month. Remember, though, to make sure at this point to pay off the balance, including any fees, every single month, on time. Plan to do this for a year or two – this is not a “quick fix,” but rather the first of a series of steps you will take to restore your credit. Your bank will report the timely payments, you will be on your way. Whenever the bank will allow you to increase your line of credit, with or without additional security in the form of increased deposits, you should do so.
After a year or two, the terms will get better, and you will probably receive other offers of credit from other issuing banks. Obviously you want to phase away from banks that require security or have high fees as quickly as possible, but whatever you do you want to retain that commitment to making your payments on time.
This plan works because banks report the credit and payments – and not always the security arrangement. But it makes sense, doesn't it? You will be embarking on a disciplined course of action of borrowing and repaying over time, and security or not, that is exactly the behavior banks need to see in order to extend credit. Remember that eventually all your negative credit history will be erased by time – that's seven years for anything other than a judgment. When that time is up, there will be a void in your credit history, and banks do not like to lend to people without credit history. Among other things, they know why that history is void. By doing this, you will begin creating a new history for them to see.