Lesson 12
Building & Rebuilding Your Credit

When it comes to credit experience and history, there are 3 types of people. There are those with a good credit records that have been established over a period of years. There are those with no credit record, usually young adults fresh out of school and widows who have had no credit in the past. And there are those with bad credit histories.

If you have no credit history or a bad credit history, there are at least 24 steps you can take to improve your chances of having a loan application approved. This is what you need to do:

1. Pay Your Bills on Time
   Without question, this is the very best way to create a positive credit report. This means pay all your bills, including those which have nothing to do with the extension of credit. Even if you have no credit, chances are you have to pay rent and utilities. Make sure that the checks go out promptly each month. Every month, credit grantors as well as others report payment information about your accounts to the credit bureau. Because of this you can establish a history of responsible credit use. On the other hand, late payments can severely damage your chances for being granted loans in the future.
2. Don't Bounce Checks
   If you don't have money in the account to cover the check, don't write it. In some states, you can go to jail for writing bad checks. Sign up with your bank or credit union for an automatic loan plan attached to your checking account that goes into effect if you exceed your balance, just so you don't suffer from even an honest mistake. Bad check fees can amount to $50 or more per check and often exceed the amount of the check.
3. Think Long Term
   Don't be impatient. It takes more than just a month or two to establish and build a solid credit history. It may take a couple of years of being on your own before you have enough credit history to qualify for a car loan, and 3-5 years or more before you will qualify for a mortgage. If you are re-building, it will take some time before lenders may be willing to give you a second chance. During that time, your financial dealings will have to be clean as a whistle.
4. Start Small
   Apply for loans of small amounts. Lenders are more apt to approve applications asking for a few hundred dollars than they are to approve loans of many thousands of dollars for those without a positive credit history. As time goes by and you demonstrate that you are responsible in handling your financial obligations, you will probably be able to borrow larger amounts. You have to crawl before you walk, and you have to walk before you run.
5. Visit Local Lenders First
   A local bank, credit union or finance company may be more willing to set up a small loan for you than an out-of-state credit card company which will process your application in its computer. A local lender may know more about you and what is going on with your employer and family, which makes the loan application much more personal. If you get the small loan from a local lender, make sure that you make your payments according to the terms of the loan agreement.