A friend going through some difficult times asked about how we improved our credit scores. Before diving deep into this, repairing credit requires cash flow. Your expenses need to be considerably less than your income. Consult the “Where to Start” post for positive cash flow ideas.
My credit score was in the 500s after I declared bankruptcy in 2008. This affected mainly my auto insurance, and I could not purchase a car, so I had to lease one.
Leasing is always more expensive than buying a new or used car because a higher credit score is required to purchase a car. However, bankrupt people have few options, and they need reliable transportation for work and family commitments.
When I declared bankruptcy, my lawyer gave me an application for a credit builder account, also known as a secured account. This account requires that you have on deposit the credit limit. My lawyer told me to charge as much as possible and pay it off each month. After a few years, they told me I no longer needed the deposit account.
Because we reduced our expenses and were saving 30 percent of our income, paying off the account was rather easy. This is rather significant because had we not reduced expenses, we could not have been in a position to pay off the credit builder account.
It’s useful to know that department store credit cards don’t help in improving one’s credit score much. Paying off credit cards monthly helps. Carrying a balance does not help. This is important because insurance and prospective employers will check your credit.
I understand most credit unions offer a credit builder account secured by a savings deposit account. Check out https://clark.com/credit/how-to-build-credit/ to look for credit builder opportunities.
The Late Frugal
