Is Avoiding Credit the Answer to Credit Repair?

After going through a tough financial time, you might think its wise to avoid credit.  If you have abused credit through excessive spending, you may think this is the right thing to do.

You might also think that being debt free is important to lenders. Believe it or not, nothing could be further from the truth. 

A creditor wants to know how you handle your credit cards, loans and other debt. If you have no debt, a lender has no grounds on which to base their credit decision, in other words--- credit denied..

This is very important especially after a bankruptcy. Lending institutions want to know that you have mended your ways are are diligent in improving your credit habits.

So to improve your credit you have to start on a credit repair program. If you try and remove bad credit yourself, it is not always a quick fix. 

Two things have to happen
1. Get rid of the bad credit marks.
2. Add good credit on to your history.
 
So if you are looking at credit restoration companies that promise of a "shiny clean report in a matter of weeks", run the other way. It can take years if you do it on your own. However, a good restoration company can certainly make your time frame much shorter. Like anything else in life, get a professional that knows their business, they will get done the job done a lot quicker. and will provide a huge value for your dollar.

However, if you want to do something to improve your credit yourself, here are some ideas to help you:

1. Go out and establish new credit. Word of caution: If you plan to open new credit, do it slowly. If you have your credit pulled and open multiple accounts at once, it brings your score down. So take you time, you don’t want to over do it.
2. Ask family or friends for help. Let's say a good friend of yours has excellent credit history. Ask if they would consider helping you re-establish your credit by adding you as a co-owner of your account. They are a little nervous doing something like this even though you are good friends. Let your friend know that you understand their position and if they are uncomfortable doing this that you are okay with that.
3. Get a secured credit card.  Start with your local consumer credit union. They have some great options for people with poor credit. If you know someone there, go to them, if not, don’t be afraid to walk in and ask about a secured credit card.

   Usually you can still get this type of credit card even if you have some negative marks on your credit report.  By putting $250-$1000 into a savings account, you can use the card to charge up to the amount you put into the savings account.

4. Get easy credit. Again, my favorite place to get easy credit is a local credit union. Credit unions are more willing to work with people who have not so perfect credit. 

   Retail store credit cards might be an option too. What I have done before is call the financing department and explained my history. Most can give you some idea of your chances of being approved before you actually apply. We went to a furniture store financing department one time and they said that based on what we told them, our credit history would not pass their credit guidelines so we knew to not even apply.

5. Keep your accounts active, not maxed out. Once you have opened a few new credit accounts, be sure you have activity regularly. Creating a GOOD payment history goes a long way. I always tell people to just charge one tank of gas on the first of the month, then pay it off when the bill comes due. You don’t even have to carry the card in your wallet except one day. This shows potential creditors that you handle credit well and will assist your core to increase over time.

   This does not mean create a large debt. Just charge a tank of gas or $20 in groceries, then pay it off.

The goal here is to establish a good payment history, so when the bill comes pay it ON TIME. When you apply for a future loan, creditors will be able to see how you handle your new credit lines and give you the loan you want.