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Recently we at Credit.com received a cautionary tale about the lasting impacts of bad financial decisions. Reader Rebecca wrote in to tell us that even though her husband passed away four years ago, her finances still have not recovered from the mess he left behind.
“We were married for 21 years,” and in that time, she says, he ruined her credit.
In an interview with Credit.com, Rebecca told us her husband asked her to apply for a Sears credit card in her name. He charged up to the card’s limit, and never paid the bill. Other unpaid bills stacked up; eventually the family had to declare bankruptcy. The situation became so bad that she took over the family finances altogether, she says, and started to repay their creditors. Her husband became ill and passed away, and she was left to undo the damage.
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She says her credit score is so bad at this point that she can’t even get a credit card from a store like JCPenny. With no ability to borrow, even in times of emergency, she wonders what she’ll do if her car breaks down.
“I just wondered how I can ever get ahead where I can have a little peace of mind just in case something bad does happen,” she says.
Even though Rebecca is paying her current bills, she’s still feeling the effects of her ruined credit history. However, she can work to rebuild her credit score and get the financial security she needs.
But Tom Quinn, Credit.com’s credit scoring expert, warns that it may be a slow process. With high unemployment and a lingering recession, “it gets even harder and more frustrating for those people who may have some degree of negative payment history showing on their credit reports and are trying to re-establish their credit history,” Quinn wrote last summer in a story on building credit scores.
[Related Article: Tips to Rebuild Your Credit]
Here, then, are some tips for people who are trying to rebuild their credit scores.
1. Open a bank account. Your checking and savings accounts aren’t typically listed on your credit report, but the information is often requested on credit applications anyway, Quinn says. Also, it may make it easier to get a traditional bank loan, which would give you cash for a purchase and help you build your credit rating. “Many lenders will take existing customer relationship information into consideration when reviewing an application for credit, which could help increase your chances of being approved,” Quinn says.
2. Are you sure Sears won’t have you? Credit cards from department stores and gas stations are historically easier to get than cards from banks “because they make revenue from the purchase of merchandise in addition to revenue associated with the credit issuer,” according to Quinn. Even if you applied a few years ago and were denied, perhaps your score or the retailer’s lending requirements have changed since then. It doesn’t hurt to try again.
3. Apply for a secured credit card. When you open a secured credit card, the amount you deposit becomes your credit limit. Banks usually report payments to such an account to credit bureaus the same way they do with regular credit cards, so this is a way to build your credit score using cash you were already going to spend anyway.
4. Become an authorized user on someone else’s credit card account. When you do this, the card holder’s payment history appears on your credit report. This could be a boon to your credit score, but there’s a chance it could also hurt you, Quinn warns. “If the card holder has stellar credit, it has the potential to help boost the authorized user’s credit score,” says Quinn. “Note, there is risk with this option as any negative performance on the card holder’s credit card will also show on your credit report as well.”
5. Apply for a traditional credit card from a credit union or a smaller bank. “Smaller banks and credit unions may be more flexible and willing to work with you directly to help you establish credit,” Quinn says.
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Image: Steve A Johnson, via Flickr