Need advice on rebulding credit

[Anonymous]

Hello experts,  Here is my situation. 7 to 8 years ago, I had experienced some financial problems and couldnt pay my credit cards. They went collection agencies. Now, I am more financially stable, and have made many settlment with collectors and paid them over the past 4 years or so.

I was extremely sad that I had to go through such bad time financially, but I didnt have any choice at that time.

I would like to start afresh and rebuild my credit, but I am not sure how to go about it.

For the first time in several years, I did get an offer from Capital One card, stating that they will give me a credit card (with some annual fee) that would help me rebuild credit. I was their customer about 8 years ago.  I have accepted their offer in hopes to rebuld my credit and they accepted my application. I will use the card responsibly and try to rebuld my credit.

In my research, I also heard that it is good to open up another secure credit card account with my existing bank (where I have been banking for more than 5 years). I am planning to do that too.

I need some advice on how to go about rebuliding my credit. Am I doing the right thing?  Is it okay to open up another secure credit card account with my bank and manage the two accounts responsibly and hence bulid the credit?  Should I seek any professional help in this matter? if so, any suggestions?

Thank you very much

[RobertEG]

I will offer my own opinion.  Others may differ, but this is my opinion.

The very first thing I would ask is, when do you plan to apply for NEEDED new credit, such as a mortgage or auto loan?

Credit rebuilding for the longer term is very different from short-term efforts to improve credit score.

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Provided that long-term credit rebuilding is your goal, then I think your plan is on the right path.    Long-term credit rebuilding requries the establishment of at least two active lines of revolving credit.  And management of the revolving credit history, with no derogs on those accounts.

No, securing a new revolving account now probably wont improve your current FICO score.  It will involve new inquiry hits, and will give you an account with zero initial age of accounts.  If its CL is low, even minimal charges against it could drive your % util to high levels.

Firm advice is hard to give,  It depends on your long term goals, and how much you understand the impacts.

[Anonymous]

Hi Robert,

                    thank you for the reply. My goal is eventually to buy a home, may be in a couple of years. But, if it is not practical, then I have no choice but to wait. What I do want to do though is to be on the right track and fix my history, so that one day I am eligible for a loan. Sooner the better, but I am not in any real hurry too.

I am planning on spending 30 percent of the credit limits on my two credit cards and pay them in full every month and do it consistently over a period of time and hence build my credit. Does that sound like a good strategy?

Thank you again for your advice. I sincerely appreciate it.

[Anonymous]

Your on the right track. By getting a Cap one card and possibly another secured card you will improve your credit over time.

Try to find a secured card that will graduate. I made the mistake of getting an Applied bank card which will not graduate into nothing.

I would start doing GW letters for any derogs that are paid.

Sometimes settled CO's can be harder to GW, but if they are not paid off all the way. You can still offter to PFD for the remaining balance.

[mauve]

For ideal scoring, you will want to charge up to 9% on one of the cards and pay it off in full when the statement cuts.  I'd alternate between the two to keep them both active and reporting.  Ideal scoring for revolving credit involves having no more than half of your cards reporting a balance, and your total utilization being 9% or less and your utilization for each card being 9% or lower.

[Anonymous]

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@mauve wrote:

For ideal scoring, you will want to charge up to 9% on one of the cards and pay it off in full when the statement cuts.  I'd alternate between the two to keep them both active and reporting.  Ideal scoring for revolving credit involves having no more than half of your cards reporting a balance, and your total utilization being 9% or less and your utilization for each card being 9% or lower.

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Just to clarify a little.  You can charge much more than 9% on your cards.   Keep your reported balances less than 9% - and the rest of what mauve wrote is spot on.

[MarineVietVet]

Another strategy that works for people is to only have one of your cards report that <9% utilization each month on the statement and then pay in full before the due date to avoid interest charges.

Any other cards you have should always report a zero balance. That doesn't mean you can't use them it just means you'll need to time your payments on these other cards so that the balances are zero on the statement date.

Both approaches of course are for maximum score tweaking and can be a hassle to try to keep up with month after month but try as best you can. You might see which strategy seems to work best you for over the course of several months.

From a BK years ago to:
EX - 9/09 pulled by lender 802
EQ - 7/06-663, 3/10-800
TU - 8/10-772
You can do the same thing with hard work

[Anonymous]

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@MarineVietVet wrote:

Another strategy that works for people is to only have one of your cards report that <9% utilization each month on the statement and then pay in full before the due date to avoid interest charges.

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That's my favorite.  I hate to pay someone else interest!!! 

[Anonymous]

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@Anonymous wrote:

Your on the right track. By getting a Cap one card and possibly another secured card you will improve your credit over time.

Try to find a secured card that will graduate. I made the mistake of getting an Applied bank card which will not graduate into nothing.

I would start doing GW letters for any derogs that are paid.

Sometimes settled CO's can be harder to GW, but if they are not paid off all the way. You can still offter to PFD for the remaining balance.

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Thank you gbishere. As suggested I have applied for secure card with a $1000 limit at my financial institution. In the terms and conditions they mentioned that they will likely graduate to a different unsecured card after watching how I manage this account over a period of 12 months.  So, thank you again for the advice.

I am not sure what GW letters are, but will investigate into that.  I still need to learn this jargon, so I know what I need to do.

[Anonymous]

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@Anonymous wrote:

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@mauve wrote:

For ideal scoring, you will want to charge up to 9% on one of the cards and pay it off in full when the statement cuts.  I'd alternate between the two to keep them both active and reporting.  Ideal scoring for revolving credit involves having no more than half of your cards reporting a balance, and your total utilization being 9% or less and your utilization for each card being 9% or lower.

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Just to clarify a little.  You can charge much more than 9% on your cards.   Keep your reported balances less than 9% - and the rest of what mauve wrote is spot on.

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  Wow, that is some valuable information. Thank you mauve and beamMEup for these suggestions. I will follow the directions accordingly.