Bankruptcy and divorce can not only flip your financial house around, it can also significantly drop your credit score. While your entire financial situation is not solely based on that three digit number, it does play a significant role in your ability to get loans for cars, homes, and credit for purchases.
Ignoring your credit score can cost you a significant amount in additional interest when applying for a loan, so getting your credit score under control is paramount to improving your finances.
This post will discuss a few tips for moving in the right direction following a major life-event such as divorce or bankruptcy.
Monitor Your Credit
Consider your credit report as your guiding map to reestablishing your credit. You will not only want to monitor your credit score, but you will also want to make sure that all discrepancies are corrected or removed immediately. While many companies are quick to report delinquencies, they are not so quick to remove items. If you find items that are incorrect, dispute them immediately and ask for their removal, this does not only include collections, but late payments that might be incorrect.
Make Sure All Your Payments are Made on Time
Paying your bills on time has a major impact on your credit score. Additionally it is one of the primary areas that companies will look at before lending any money. To help stay on track with your monthly payments, create a monthly budget and ensure all required payments are made on time even if means cutting the budget for non- necessity items, such as cable or phone extras.
Get Some New Credit, But Not Too Much
After your credit score takes a hit, it is important to reestablish your credit and one of the first steps to doing that is opening a new credit account. While credit card debt may have been part of what pushed your score down, having a source of revolving credit is a necessity to improving your credit score. Most likely you will have to start with a secured card and establish a steady history before moving to an unsecured card. Just remember not to get carried away. You should be able to form sufficient credit with proper management of one major bank and one store cards. Even if you have the cash in hand to buy a big-ticket item outright (such as a new washer or dryer), take advantage of store credit. Many offer free financing for six months or one year. Make timely payments for four or five months before paying it off in full.
Stay Within Your Limits
Once you have established a revolving line of credit, it is important to not run up to the limit immediately. Ideally you will want to always keep the amount of credit used at less than 30 percent of the credit limit. To keep from getting this percentage out of hand, only use the charge for regular payments that have money already budgeted for them. Set a monthly budget for credit card charges that you know you can cover in the next month and stick to that limit.
Keep Your Accounts Open
While a bad experience with credit cards may have you spending the day with customer service to cancel every card you no longer use, resist the urge. If you feel you won’t be able to control yourself on your next shopping trip simply destroy the card, but do not cancel the account. Not only will the available credit increase your open credit, it will also reduce your card utilization percentage. Additionally, while not a large part of your credit score, length of an open credit account will help increase your score slightly, as it will show that you have an established credit history.
Just remember, don’t get frustrated. Slow and steady wins the race. Do not expect your credit score to change overnight. By setting and trying to achieve small goals, each point will be one small victory to the credit score you want and the financial security you deserve.