NFIB

Re-establishing Your Credit, Part I
03/ 07/ 2002


If you've had a downturn of finances in the past, and as a result have missed payments or defaulted on loans or credit cards, the chances are that you're in need of re-establishing your credit. You may even need to acquire a new credit card. In today's Workshop, writer Jeff Moses discusses some important points when re-establishing your credit.

--The first thing to re-establishing good credit is to set up checking and saving accounts at a local bank. Make regular deposits, and after3-4 months (or when you have $1,000 or more in savings) apply for a loan that is secured by your savings account. You might have to pay a little higher than normal rate for this loan, but by paying it back over a period of time (5-8 months or so), you'll start putting your credit back in order. Talk with you banker and make sure that records of the loan and the payments will be sent to credit reporting agencies that keep track of an individual's credit files for review by banks, credit card companies, large suppliers and any other type of organization that needs information before extending credit.

--When you've built your savings account up a little, obtain what is called a "secured credit card," which uses your savings account as collateral. Many banks offer this type of card. The rates on these are steep (and you'll have a fairly low credit limit because it will be linked to the amount of money in your savings account), but at least you'll have a card. This type of card can help you re-establish credit when you make regular payments on what you charge.

--Some banks offer "pre-pay" credit cards. To obtain one of these you'll need to put down in advance $500, $750 or $1000, for which you will be issued a card with a credit limit of equal value. This certainly isn't a method of choice for obtaining a card, but it will at least enable you to get one.

--In certain situations your spouse may be able to obtain a VISA or Mastercard even if you can't. This card can then be used for purchases and advances. Of course, this will not help your personal credit initially, since all activity on the card will be in your spouse's name. However, after some time your name may be added to the card as your spouse builds up good enough credit. Make sure that this arrangement does not strain your relationship.

Next week's article goes into detail about how to make sure that your credit reports reflect the re-establishment of your credit.

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