How Long Does it Take To Build Credit?

by admin on July 10, 2008

Starting from the bottom; bankruptcy in the U.S. isn’t an automatic disqualification from building up to a good credit rating, but it will take some work and organization.

First, make sure that your debts are correctly listed as discharged. Some companies will not have changed your records in their system resulting in your file showing as outstanding and overdue, despite filing for bankruptcy and having your case closed. One incorrect record can continue to tarnish your credit without your knowledge.

Second, you need to build your credit up slowly in increments that you can manage. You can apply for a secure credit card by leaving a deposit at the bank for between $200 and $500. You then make small purchases and pay the bills off on time. Once you have done this for a while, you can apply for an unsecured credit card with a slightly higher balance, making sure to continue making your payments on time. This type of credit is known as revolving credit and includes home equity lines of credit.

Third, you need to build up your installment credit. This type of credit includes car loans, mortgages and student loans. Applying for a mortgage within a year of filing for bankruptcy isn’t out of the question, provided that you have a reasonable downpayment and are taking on a mortgage that you can reasonably afford. Making payments on time – sometimes having more than one payment per month can be very useful in paying off the balance quicker – will increase your credit rating. Auto loans paid on a timely basis can also improve your credit, but again, be careful not to bite off more than you can chew. If you have never had credit and are starting from scratch, a student loan paid in a timely manner can build up your credit score.

You can reasonably expect to have a decent credit rating in 1-2 years if you make sure to pay all of your loans on time. This article on MSN Money is particularly helpful.

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