With foreclosures hitting record levels, many people are having to sit down today and wonder how they should go about restoring their credit in the aftermath of a foreclosure.
I am not going to lie to you. It will not be easy, and it will take some time to work out, but it can be done.
Most people simply file bankruptcy and wait ten years for that foreclosure and bankruptcy to drop from their record. At this point in this article, it is very important to note that you just cannot wait for the for foreclosure and bankruptcy to drop off your credit report. The law says that after ten years, the credit bureau must drop those records from your credit report, but they will not do so unless requested to do so by the consumer. So when your time comes, be sure to get in touch with the credit bureaus and request for them to drop the records that will hamper your credit status.
Secured Credit Cards
One of the easiest methods available to help people rebuild their credit starts with a savings account. With as little as $300 in hand, one can go to companies such as the Bank Of America to request a savings-backed credit card.
The Bank Of America Secured Visa Credit Card required a minimum deposit of $300 and a maximum deposit of $10,000, and it requires a $29 annual fee.
In essence, you will deposit money into a Bank Of America security deposit account, and BofA will make available to you a credit card that has a maximum limit equal to the amount of money you have in your BofA security deposit account.
You can use your BofA Secured Visa Credit Card as you use any credit card, to make purchases at stores or to get a cash advance from an ATM machine.
Keep in mind that Bank Of America will not draw money from your security deposit account to make your monthly payments. You will still be required to make the minimum monthly payment each month that you have a balance, and your security deposit account only exists to ensure that BofA will be paid in the event that you default on your secured credit card.
Although you are only required to make the minimum payment each month on your secured credit card, BofA recommends that in order to rebuild your credit more quickly, you should pay your payment in full each month.
The Bank Of America Secured Visa Credit Card is one of the most recommended secure credit cards available in the marketplace, although it is not the only one.
Another popular secured credit card is the one issued by the New Millennium Bank, which you can learn about here:
http://www.creditcardnewsroom.com/brand/new-millennium-bank/secured/black-diamond.html
Secured Bank Loans
Back in the 1980′s, I had built my credit using a process that was recommended in a book.
I started with a cash deposit of $1000 at a local bank. I then acquired a loan from that bank, secured by the savings account that I had opened there.
I took that money borrowed from the first bank, and deposited it in a second bank. From that second bank, I obtained a second loan secured by my second savings account.
With the money acquired from that second loan, I set up a savings account at a third bank, and then I left that money alone.
You can trail this process out as far as you want, but I only did it with two loans myself.
Each month, I paid my loan payment when it became due. If I was short cash that month to pay both of my bank loans, I would take money from the third savings account to make that payment. Otherwise, I would just pay the loan payments out of pocket.
For what amounted to be a few dollars interest, I managed to pay off two $1000 loans in one-year, at two different banks. At the end of the cycle, I repeated the cycle, letting my first bank keep the cash on hand, and the third bank to become a new lender.
Of course, I had managed to save some money over that first year, so when I repeated the process in the second year, I did it with $2000 instead of the original $1000.
By the end of the second year, three banks were offering me loans and many credit card companies were also looking to loan me money.
Bank Loan Advice
The trick to borrowing from a bank is to pay off your loans over the stated term of the loan. If you take a one-year loan and pay it off in a couple of months, then you will have gained no positive favor on your credit report. The reason why paying early does not always benefit the borrower, is because the bank was not able to see that loan payments can be paid “on time”.
Whatever loans you may take from a lender, you should always maintain payments for a minimum of six months, before paying off that loan. To do otherwise will not yield a positive mark on your credit report.
So long as you keep your loan running for a minimum of six months, there is no problem in paying off your loan early. Some people get ahead on their credit reports by paying double payments each month.
As recommended by some economic guru’s, you may also consider making thirteen payments a year, instead of the standard twelve payments per year. If you think about that, all you need to do is to make one payment every four weeks, as opposed to making one payment each calendar month. This works really well towards paying down your principle on a home mortgage or car loan.
Another recommendation that many guru’s suggest is to make semi-monthly payments – payments every two weeks. This is beneficial in that it reduces the overall interest you will have to pay over the life of the loan, since interest is always calculated against the amount of principle due on payment dates.
Small Loan Companies
In the small consumer loan market, there are a lot of loan choices available to the consumer.
Of course, there are the loan companies who specialize in loans that can be used to purchase furniture or consumer electronics.
There are also loan companies that specialize in loans of up to $500.
With these types of loan companies, the same rules apply as recommended above. Also with these loan companies, if you ask them to do so, they will report your positive payment history to the credit bureaus.
There are also the loan companies that specialize in what is called payday loans or cash advance loans. With these companies, you are in effect getting a loan that will come due on your next payday, hence the description – payday loans.
Payday loan companies should not be employed to build credit, as it is the most expensive type loan you can acquire. You can use it when you are meeting a cash shortage to help you get over that next hump, but you should only borrow from the cash advance company when you know for certain that you will be able to pay the loan back on your next paycheck.
Rebuilding Your Credit
Rebuilding your credit requires determination, dedication and discipline. You have to start small and work your way up the credit ladder.
I know that what I am getting ready to tell you is going to be hard to believe, but my hand on my heart honest, it is God’s honest truth.
A couple decades back, I knew a kid – I say kid, but he was in his twenties – who worked for minimum wage as a dishwasher in a restaurant.
This lowly dishwasher had better credit than I did; he even had better credit than the guy who managed the restaurant – I was friends with the restaurant’s manager. This is true… I swear.
This young man lived within his means and paid all of his bills on time, and in full, every month.
Soon, he started receiving credit card offers, which he accepted. With his credit cards, he played by the same rules. He lived within his means, and paid all of his bills in full and on time every month.
After about five years, he bought a motorcycle to help him meet his transportation needs. Of course, he made those payments on time and in full every month.
Soon, he was able to finance the purchase of a home. And as you would imagine, he always made his house payment on time and in full every month.
When I last chatted with him, he was still working as a dishwasher for a bit more than minimum wage. He owned his own transportation and his own one-bedroom house, and he had credit cards in his pocket that he could tap any time he wanted to do so that in total offered him a credit line of – get this – $120,000!
This lowly minimum wage employee had a credit line large enough to buy the best stuff money could buy, but he maintained the lifestyle that he was accustomed to living – living within his means and never spending more money that he could afford to pay back.
Now, that is discipline. He has the credit available to run out and buy a nice big screen television, yet he would not do so, because he knew his finances would not let him pay that money back quickly.
I learned a lot about credit in having known that young man. I hope that you have also learned something by knowing his story.
Author’s Note: This article also published here.
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Fred Vanhoosen writes about the payday loan / cash advance industry. To learn more about the payday loans industry, we recommend reading the following overview of the cash advance loans concept. Learn more at: http://www.fastcash4all.net/
Read more articles written by Fred Vanhoosen
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