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Start Over: How to Rebuild Your
Credit after a Financial Mess

home equity articles and tips


Personal finances can grow out of control very quickly. A single emergency or the loss of a job can result in a bankruptcy filing. Bankruptcy or another financial mess will negatively affect credit for many years to come. Fortunately, the damage that was done can be reversed with careful planning and budgeting. Several steps will help anyone to rebuild credit after a financial mess.

Take Out Small Local Loans

One of the first steps should be to start taking out small loans through local lenders like credit unions. Local lenders are more willing to provide small loans even after bankruptcy. Repaying these loans on time according to the schedule will slowly start to improve credit. Holding the loans for a few months will show active use of credit on a report. This improves scores and can slowly undue any damage done by a financial mess. Loan amounts should be gradually increased over the years until credit is restored.

Never Miss Scheduled Payments

Late or missed payments factor into credit scores and reports very heavily. It is important to never miss a payment or make a late payment. This should include structured payment arranged by a firm like Lynch & Belch P.C. after a successful bankruptcy. Required monthly payments should come before most other expenses when trying to rebuild credit. Any services that cannot be afforded should be cancelled. Several years of successful and on-time payments will reflect very positively on a credit report.

Secured Credit Cards

Secured credit cards are used just like traditional credit cards. The exception is that the issuer requires a cash deposit that usually matches the credit limit of the card. The amount of credit granted, monthly usage, payments made and the amount of debt held on the card are all relayed normally to credit reporting agencies. Secured credit cards provide a simple way to start improving credit over the course of a year or more. The main drawback is that most cards do come with high interest rates and annual fees.

Maintain Reasonable Bank Balances

Bank balances can appear on credit reports. They are frequently used to calculate credit scores. Negative or zero bank balances can actually hurt credit over time. Not having a bank account will prevent credit from improving as well. It is important to maintain reasonable bank balances. Even carrying a moderate positive balance for six months to a year at a time will improve credit. Saving money can help to rebuild credit when combined with secured borrowing.