There are many opportunities to start establishing credit for you. Some people have no problem applying for a credit card or signature loan from the beginning. Let’s establish why and what you can do to get yourself in that position.

Someone who has a steady job and worked there for a long time has established a history of stability. They aren’t jumping around with different jobs and show that they are valued as an employee.

Someone who has only one residence on their credit file also shows stability and has established that they are not flighty or other serious problem with staying stable in one location. These points are well considered when applying for credit of any kind.

I have also established that living in a particular area has an effect on credit score and whether you can get a loan simply because of where you live. It is not pronounced, but could become a big factor in the future. The factors involved are if you live in a rough section of town or if you live in an affluent section of town. The credit bureaus my credit repair collection agency credit are gathering enough data now to be able to determine enough fact to consider this in the now or in the near future.

If you have recently come out of bankruptcy, you’ll find your credit score could no doubt use a quick boost. Getting your financial picture back in order once you have had a bankruptcy discharge can be a tricky task – but nevertheless, it can be done. Following these quick tips can get your score elevated to the point that you qualify for great loans and lines of credit offered at substantially reduced interest rates in a relatively short time.

Begin Adding Points Immediately

You can begin adding points to your credit score almost immediately upon having your bankruptcy discharged by taking on small and manageable amounts of credit. Before doing so, however, you should check your newly updated credit report. Since there are three major credit reporting bureaus operating in the country, you should retrieve your credit report from all three credit bureaus to determine if the accounts that you included in your bankruptcy proceedings have been noted as such. In addition, you’ll want to get your FICO credit scores to know your starting point.

Sometimes, a creditor will fail to report the change from collections to discharged in bankruptcy, and the item will remain on your credit report – making your credit score dip even lower. Contact the credit bureau and disputing these items that is holding the report immediately upon recognizing this error to have it corrected is a prudent start. .

The Most Important Accounts You Can Open Now

Almost all creditor applications ask where you do your banking and while there are many different accounts that you might consider opening to add points to your damaged credit score. Perhaps the most important two are not accounts that extend credit, but rather just make you look like a more responsible person, and therefore, a more appealing borrower – a checking account and a savings account.

Secured Credit Cards Add Points Fast

You should open up a secured credit card account as soon as possible when your bankruptcy has cleared the courts. A secured credit card is just like a regular credit card in that it reports either monthly or quarterly to the credit bureaus – the difference is that you will place a deposit equal to the amount of credit that you wish to have extended on your behalf with the card issuer.

Maintaining a good payment history with your new secured credit card is one of the fastest ways to add valuable points to your credit score. You might consider opening more than one account to maximize the number of points you can add – just make sure each card is with a separate bank. You can open a secured credit card account with as little as three hundred dollars, which is a very small investment to reap such great benefits. No, a three hundred dollar line of credit is not where you want to end up but it is a great start to turning things around.

Unsecured credit cards

There are several institutions that will extend you a small line of credit shortly after a bankruptcy. The reason is that these banks believe, what is a better time than now to help a person out right after they have come out of a bankruptcy and had all or most of their debts wiped out. This means more disposable income and a greater chance of repayment in their eyes. These cards will typically be granted at $300 to $500 credit lines to start.

You can find some great deals on secured and unsecured credit cards online via the Internet. There are many lenders who specialize in these types of cards for borrowers who are in your same situation. The interest you pay will be higher than going to your local bank and getting their platinum gold plated credit card but the benefits you’ll gain by rebuilding your credit far outweigh the extra few dollars the interest may cost.

Sound charging practices though are required… but I guess that’s another day!

Herschel

Secured loans are just what they suggest… loans that are secured by something of value that you own, such as a home, a car, a boat, accounts receivables, or some other item of value that you can convince your loan office is of worth and they will take the risk to loan against.

One of the reasons you would do this is you need the money… duh! Ok, of course you need the money, but the point is that you need the money for something… say, to get a business started, or because you don’t have enough of a down payment to satisfy the loan company who is giving you the loan. A secured loan helps you get the money or the item you want before the bank trusts you enough to do it without. Some loans never have enough trust to secure it with just your signature, such as a mortgage, or a car.

Ok, how does a secured loan work? When you go to sign your name on the signature line, the loan company is saying that you will need to put up the value of the property, item, and vehicle in case you default on the loan. If you stop making payments, they want to know that they can get their money out of the property even if it is a hassle to take possession, then sell it and perhaps lose some of the value. They will somehow get most of the money out of it, regardless. Now, you on the other hand have just tanked your credit score, because the loan company will report lates, then charge-offs, foreclosure, or repossession on your experian business credit file, thus your score has been devastated.

However, secured loans are a great way to get your credit established and get to the point of an unsecured loan that will show low risk and start your credit scores out right.

When you’re looking for a new mortgage, many lenders evaluate your credit based on the “Three C’s.”

Credit

Is it likely that you will repay the loan?  Are your payments on time and up-to-date?  Are you financially stable and reliable? What are your credit scores?  Today’s marketplace, most conventional lenders require your scores to be in the 700+ range and most FHA loans a 620 score or higher.

Capacity
Are you able to pay the loan?  What kind of outstanding personal debt do you have?  Do you have enough earning power and net worth to repay a mortgage or home equity line of credit?

Collateral
Do you own something of value that can be promised to the lender if you don’t repay the loan?  If you have home equity loans for less than perfect credit collateral may assist your loan request.

There are a few more factors mortgage lenders look into when evaluating your capability of obtaining a loan.  To confirm your responsibility and stability they may examine:

• Your monthly income
• Occupation and length of time with employer (two or more years is ideal)
• Home ownership status and history
• How often you move or have moved; patterns of behavior and the timing of that behavior

And there are other examples such as, if you had a charge-off (when the creditor sells your debt to a collection agency) in your credit file from several years ago and you’ve been able to maintain your credit over the years, you will be judged differently from someone who recently had a charge-off.

But whatever the case, it’s imperative to get off on the right foot when rebuilding your credit.. It is important to establish good credit behavior as early as you can in order to build a solid credit reputation.

Essentially, credit bureaus will look for five main characteristics when determining how high your credit score will be.

In descending order, they are:

1. Past delinquency.  If you have failed to make payments in the past, lenders fear you will repeat that behavior based on your bad credit history.
2. How your credit has been used.  Have you maxed out or spent close to the limit on a credit card?  If so, then you may be considered a greater risk than someone who is more conservative with his or her credit line.  Do you pay off your bill every month or a keep a revolving balance?
3. How long you’ve established your credit history.  The scoring models can judge each individual separately.  Credit reporting agencies may take into account the duration of a person’s credit history.
4. Frequency of credit inquiries.  It is recommended that you check your credit once a year to see if you have a good or bad credit rating.  Creditors requesting reports several times in a short period may send a signal that you are applying for a lot of credit due to financial difficulties, or that you are taking on too much debt and overextending yourself.
5. Your credit variety.  It is best to have a mix of installment and revolving loans (e.g., auto, credit cards, retail, etc).  On installment loans, a person borrows money once and makes fixed payments until the balance is gone, while revolving borrowers make regular payments, each of which frees up more money to access.

It is important to understand all the factors that determine if you have good or bad credit.  It is never too early to begin building a good credit history and avoid bad credit inconveniences in the lending process

Till next week…

Herschel