Five years ago I was broke, couldn’t afford to pay my rent and had all of my credit cards revoked by the credit card companies. Five years ago I had no credit cards and now I have three, two of which I don’t use, but we’ll get into that in a minute.
As a financial planner after the market crash I hit financial rock bottom and was forced to live on a cash budget. That was new to me because for years I always had a credit card in my pocket and had a little glimpse of pride rush over me every time I swiped my credit cards…and I swiped them a lot.
I turned my financial life around, rebuilt my credit score and vowed to never go back to being broke. If you’re going through tough financial times I am living proof that it’s only temporary and you’ll get through it – you just have to work at it.
Here are three ways to rebuild your credit score:
Stop using and pay off your balances
Whether it’s on your own terms or at the demand of the credit card company the first step to rebuild your credit score is to stop using your credit cards. Before I even started thinking about using credit responsibly I paid off all my balances in full. I don’t think I could have continued to spend within limits so I had to stop using my credit cards cold turkey.
Start with a store card
When you’re debt free and want to start using credit again you probably won’t be approved for a fancy, low rate or rewards card with a traditional lender such as a bank. You’ll need to start at the bottom and work your way up. Apply for a store credit card such as Macy’s. These types of cards are usually easier to get approved, but in exchange the interest rates are higher. So be sure to spend within your limits and pay off the balance each month so you don’t pay high interest charges.
Learn new habits
I will never forget the first time a bank offered me a credit card. I cried. I called BF with the good news and then I cried. I had a second chance to rebuild my credit score and my financial life. I promised then and there that I would always double guess my spending, be very selective as to what I charge to the new credit card and never ever misuse it again.
I think I installed a level of fear inside myself and if you want to rebuild your credit score you should too. Think back to what it’s like to be broke and how hard it was to afford to eat and pay rent at the same time. I’m sure you don’t want to go back to that kind of lifestyle and with that always in the back of your mind I’m sure you’ll always think twice before swiping your credit card.