Rebuilding Your Credit

Something folks often ask me about is rebuilding credit after a bankruptcy. While this show is devoted to helping you avoid bankruptcy in the first place, I thought it might be helpful to consider ways to get back on board after any financial problem. I am not a credit-repair specialist—these are just things I’ve picked up in my 30+ years of experience.

The first step, stay employed. This means maintaining your health and staying on good terms with your employer. Not having a job doesn’t make you a bad person, but it’s hard to get credit if you’re not working. A steady job over time makes you an attractive candidate for credit—even if you’ve had some bumps in the road. And never leave a job without knowing exactly how you’re going to replace the income—hopefully with a new job you can count on.

Second, try to maintain the same residence. Again, it often happens that we have to relocate, but frequent moves do not look good to prospective creditors. A year or two at the same address shows stability and consistency in your life.

Third, for every single expense that you pay each month, never be late, not even by a day. Not just credit cards and house payments, but utilities, car insurance, and medical bills. In fact, schedule two different days each month to pay your bills—that way you won’t miss one by accident. Better yet, set up automatic payments through the “bill-pay” feature on your bank account.

Fourth, get medical insurance. The biggest reasons folks fall into financial difficulty are job loss and illness. You can’t do much about it if your employer closes the plant, but you can protect yourself from unexpected illness. Even with Obama-care, large medical bills are still a principal reason that folks have to file bankruptcy.

Fifth, although I ordinarily recommend against any use of a credit card, it’s not hard to get one with a modest balance, or even a secured credit card. Once you have it, use it responsibly and make your payments religiously. On your credit record it will look like a regular credit card.

Sixth, go today or tomorrow to your HR department and set up a voluntary wage deduction to fund a savings account with a local credit union. Not a lot—say $20 or $30 a paycheck. And use a credit union—it’s a lot easier to develop a personal relationship than with a bank. And this is a special account—you never make withdrawals short of major emergencies. (If you have to save for car insurance or house taxes, have a separate savings account.)   The purpose of this account is to show that over time you are in control of your finances since you’ve made a contribution on every payday, didn’t run up new debt, and didn’t withdraw any of the money. That is solid gold proof that you’re serious about rebuilding your credit.

Last, folks, I urge you to avoid those heavily-advertised “experts” who would, for your hard-earned money, propose to “fix” your credit or “eliminate” your debt by mysterious means. At best these are hucksters looking to score some easy money—yours. At worst they can tarnish your credit for years by using unethical or even illegal methods. And remember, the only way to create a “new” credit record is to commit fraud. Such methods can get you in serious trouble. Stay away!

Please remember that rebuilding credit will take some time but you will succeed—so make a mini-project out of it and practice all of the good tips I’ve recommended for staying out of financial trouble.

For additional tips and answers to your financial questions, join me for my free educational series, Sip, Savor & Learn. We’ll next be meeting on Thursday, April 28 at 5:30 pm at my Salinas office, 217 West Alisal, across from the Main Fire Station. We’ll get together, nibble some snacks, share a glass of wine, and learn how to avoid those credit traps that can lead to financial disaster. Joining me will be will be loan professional Oscar Mora of Treehouse Mortgage—we’ll be discussing protecting your home in bankruptcy, and obtaining a mortgage after bankruptcy. There’s no charge, but call for a reservation, 424-1764.