How to Build, Maintain, and Repair Credit

Credit is a necessity in this day and age. Without a good credit score, it can be almost impossible to get a loan, buy a car, or purchase a house.  But what can you do if you have little to no credit? How can you get started? Well, according to David Lazarus, in his L.A. Times article, stepping into the world of credit scores and debt payments may not be as difficult as it seems.

Lazarus' sources show that over half of all American consumers have subprime credit scores. 26 million consumers have no data on file with credit companies and 19 million have information that is so outdated that it is almost useless by lenders. These Americans are unlikely to get a loan at all, and if offered, the rate on the loan will be much higher than those provided to others with better records. Lazarus focuses on two main problems: an inability to begin establishing credit and difficulty improving a low score.

There are a few types of loans that are designed to help new borrowers to start to build credit. A credit score is based on borrowing money and paying it back. So, the easiest way to establish credit is by getting a credit card from a store or a bank and using it. The key to the card is to use, not overuse. Build credit by having a balance on the credit card and paying off the balance on time each month. In this way, a lender can see that their money is in good hands. In general, when a lender gives you money, it is because you have a history of on-time payments. In fact, some credit reporting companies such as Experian and Equifax consider monthly rent payments in calculating a credit score.

After you have shown that you can handle a credit card, other loan options, such as "credit builder loans" are available, Such loans, which tend to be less than $1,000, are offered by credit unions as another path by which borrowers can show that they can be trusted. This type of loan is very interesting in that it is based specifically around building credit, rather than providing a borrower with needed money. With a credit builder loan, a designated amount of money is locked in a savings account by the lender. When the last payment has come in from the borrower, the money is released. While it would be just as easy for someone to save up their money by putting a designated amount aside each month, this "loan" allows a saver to build their credit score in the process.

As for those who have already borrowed more money than they can pay back, Lazarus assures them that all is not lost. However, do not let it get so bad that debt collectors come calling. Once the collectors show up, a mark on your file appears that will stay for up to 7 years, affecting your credit score and ability to get a loan. To avoid collection agencies, you can try working out a payment plan with your lender. Contact your creditor immediately if you think you will be behind on your payments.

If your score has already taken a hit, recovering can be difficult, but not impossible. Lazarus suggests that the first step is to get a copy of your credit report and begin paying off outstanding debts. As you pay off more debts, potential lenders tend to trust you more and more. After 7 years, the black mark on your record will disappear, which will bring your score up, but what can you do in the meantime? The best thing you can do, according to Lazarus, is just get your finances in order and avoid accruing more debts. Other than that, he assures those with bad credit that with enough time and good financial planning, things will get better.

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