Financial Advice to Women - Part Two How to Rebuild Credit Rating

As in Part One, this section is about modifying our behavior when it comes to money and understanding how the system works. We must understand that in most cases poor credit resulted in a pattern of spending over a period and as such will probably take as long if not longer to rectify.

Individuals face two common problems: Poor credit rating and no credit rating. Both have their unique issues and solutions. We will start with poor credit rating.

Poor credit ratings can be a result of a myriad if issues most likely from poor spending habits resulting in debt accumulation and failure to pay debts for what ever reason. There are other issues (bankruptcy, payment delinquency, default on loans, etc.) but they are beyond the scope of today’s blog.

Poor spending habits lead to the problems but poor decisions in solving credit dilemmas exacerbate the issues. Many people ignore obligations taking a manageable situation and making it a chaotic condition. Of course we all are going to face extraordinary circumstances in our lives that we cannot plan for (job loss, serious illness, etc.) that may well create a condition where credit rating fall. It is how we deal with these that defines our credit character.

Another problem that many women face is that of no credit rating. A woman is most frequently linked to her spouse/partner’s credit rating and does not have one of her own. Some women (and men) do not have a credit rating because they are new to the workforce or have never used credit out of fear of the system or no need. In many circumstances financial planning has driven couples into situations where both incomes are so linked that neither one of the individuals in a marriage have a clear independent credit rating. Usually the individual with primacy on the account in terms of income and naming have the rating while the other individual lacks a rating if separated from the arrangement through death or divorce.

How can an individual rectify these two problems? In the case of a poor credit rating, get informed – what does a poor credit rating mean to you. You may still be able to get credit but you may have to pay a higher interest rate or more stringent repayment terms. Your debtors wan to work with you - they want you pay off the debt rather you file for bankruptcy. Talk to them before you cross the Rubicon of Bankruptcy.

A first step in fixing a credit rating is to determine how bad it really is. To do so get a copy of your credit report and check the details of what is on the report. You do not want to be surprised. Sources of credit ratings are typically Equifax, Experian, and Transunion. You can get a copy through your bank or buy contacting them directly for a one-time fee. Be cautious that you do not signup for services beyond your needs (credit monitoring, identity theft protection, etc.). Steps to take in the short term to repair credit ratings/ranking s include:
a. Control spending.
b. Pay down debt beyond the minimum payments.
c. Pay bills (all bills) on time.
d. Do not miss payments even if the payments are small
e. Negotiate directly with the debtor for a payment plan. In many cases, they will work with you and will not report the negotiation to the credit bureaus. Other “credit counseling and debt consolidation services will report the activity and the credit rating could suffer even more despite good intentions.
f. Avoid opening new credit cards and rolling over to a lower interest rate that goes up later. This activity can adversely affect your rating instead of helping.
g. As a last resort, use a debt consolidation service. The use of these services can prolong the recovery process since it is sometimes reported to the credit bureaus.
h. Continue to create a savings culture in your life

Many young women (and men) do not have a credit rating since they are new to the work force after any years due to divorce or they are new due to recent college graduation. There is no quick way to build a credit rating but small actions quickly build up a positive rating. You ca first establish credit accounts where you can control what you purchase and monitor. Pay these off each month. This payment schedule has a positive impact on your rating history.

You can purchase a large ticket item (if you need it; not for just building a credit rating) such as household appliance, car (used or old) or furniture. This installment consumer credit is usually unsecured (other than the item being purchased and reflects directly o your “credit worthiness”. When buying a car most people want it to be owned jointly and this is okay but you are not building an independent credit rating, hence the problem if divorce or death occurs. A parent may purchase a car for a child graduating from college but it does nothing for the credit rating. Better to help a child in other ways and let her/him finance the car when thy have a job upon graduation.

If you are married with a job, you can put back money in a separate savings account do this as it is a factor when getting loans independent of your spouse/partner or you are single. Getting credit cards as a separate cardholder also helps build the credit record.

These are just a few of the ideas for building, repairing and restoring your credit worthiness in these and subsequent time. As always, see a licensed financial advisor for detailed planning when you can but remember Rome was not built in a day so time is needed as well as a disciplined approach. Your credit rating is as important as your identity so protect it.