 Rebuilding
credit after credit counseling
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 Dear
Debt Adviser,
Hello, I was in hell -- credit card debt! I have completed paying
all of my credit cards off, but all of them are closed due to nonpayment.
I went through a credit counseling agency to pay them off. Right
now I have no activity as far as credit. I need to start rebuilding
my credit but all my credit card accounts are closed. What steps
do you suggest I take to do this? Thank you for your time.
-- Lee
 Dear
Lee,
Congratulations! I hope you feel a lot of pride
in doing what you thought was the right thing, even though it was
something that was hard to do. As you have found, there are no quick
fixes in credit. It will take time, but there are some steps you
can take to help move the process along.
One of the best ways to start successfully rebuilding
credit is with the judicious use of a low limit or secured credit
card. A local lender, such as a credit
union, might be willing to offer you a credit card with a low
limit to get you back in the game. You might start with a low limit,
but it will be increased as you show off all you learned in your
credit counseling. Try to keep your balance on the card at 50 percent
or less of the maximum to get the best credit scoring boost.
If you can't find an agreeable lender, I recommend
looking at some secured
products. The term "secured" means exactly that --
you are securing your line of credit with your own money to minimize
the risk the lender is taking when they issue you a credit card.
The good news is that a secured card is reported by the credit bureaus
as a revolving account the same way as any other credit card. So
if you maintain a good relationship with the card issuer, you will
see favorable results on your credit report in a fairly short period
of time. New accounts with solid on-time payments for a few months
will greatly improve your report.
Another good tool for spiffing up your credit is a
passbook
loan. Once again, you have to have the savings to cover it,
but these accounts are reported and paid as installment loans. This
is important because another one of the factors in credit scoring
is different types of credit. Again, on-time payments are crucial.
If you get the loan through your local bank or credit union, check
to make sure they report accounts to the three major credit bureaus.
One more area you can explore is retail store credit
cards. These accounts are generally easy to acquire and carry low
limits. Use these cards only when you have the money set aside to
pay for what you are buying. Paying your monthly balance in full
is best, but if you carry a balance at all be sure to keep it below
50 percent of available credit. Again, the idea is to have a good
payment history.
This should, in fact, be your mantra for all financial
matters -- credit, utilities, insurance, everything -- pay on time,
every single time, every single obligation. Payment history makes
up a whopping 35 percent of your credit score and is the real key
to rebuilding your credit history.
Time is on your side if you can adhere to these principles.
I know you have the discipline to do this or you wouldn't have made
it through credit counseling. Remember, over time, bad credit will
drop off of your credit report to be replaced with the good.
That brings up an important point. Now that you have
completed counseling, you will want to check
your credit report and see if there is a notation in your file
saying you're in counseling. Once you complete a program with a
credit counseling agency, the notation should be removed from your
report.
Finally, one last bit of positive news to get you
started on your way: Your credit counseling experience will not
count against your credit score.
Good luck!
The Debt Adviser, Steve Bucci, is the president
of Money Management International Financial Education Foundation
and the author of Credit
Repair Kit for Dummies. Visit MMI
for additional debt advice or to ask a question of the Debt Adviser
go to the "Ask the
Experts" page to ask a debt question.
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