Rebuilding lousy credit is a hot topic with consumers these days, and one I've thought about a lot, having recently written a book about bad credit and having survived many, many years of financial turmoil. I currently have no credit cards, save one that my wife and I were able to get when my wife needed dental work last year. When I mentioned this to my bank manager once -- during a discussion about my almost-every-other-month overdraft fees -- he suggested I get a secured credit card.
Secured, as in, I put my own money into the credit card, say $300, and then I use it for a year, and eventually I'm be granted credit again. (Bankrate.com does a nice job of explaining the ins and outs of secured credit cards, in case you're interested in learning more.)
I've so far resisted my bank manager's offer and probably will continue to, at least for the time being. The idea of putting my own money in a secured card doesn't bother me -- until I think of the fees I'll have to pay for the privilege. No thanks. Or maybe I'm just uncomfortable with the idea that if credit cards got me into a financial mess, signing up for another one might not be such a great idea, even if it'll help me get out of the mess my finances are in.
If you're like me and have an anemic credit score and are trying to rebuild your credit history, here's how you can do it without ever touching a piece of plastic.
Keep paying your mortgage. Every time you pay your mortgage on time -- and doing it on time is critical -- you're restoring your good credit. If you've managed to send in your mortgage payment every month for years but have been late almost every time, you're not doing much to give a potential lender any confidence in your ability to pay it back.
Keep making that car payment. Same as the mortgage: Pay it on time. The longer you do, the higher your score will get every time your credit report is updated.
Keep paying those student loans. If you're burdened with student loans, look at the bright side: If you're paying them every month, on time, that's helping boost your credit score.
Remember the letters PRBC. I realize that if you're living in an apartment, don't own a car and have no student loans, I haven't helped you much so far. Fortunately, Jim Wells, president of Wellspring Consulting International, has an interesting suggestion. Wells, who consults with banks and other financial institutions on how to reach low to moderate-income consumers, brought up the name PRBC (which stands for "payment reporting builds credit") when I was speaking with him.
PRBC is a credit scoring company, similar to the three major ones (TransUnion, Experian and Equifax) that call all the shots, but this one provides lenders with information based on rent payments, telephone bills and other recurring bill payments -- all solid indicators of your ability to manage money but items that don't normally go toward boosting a credit score. Of course, not paying those bills will hurt your credit history, but the big three credit reporting agencies don't report on the positive side of paying these bills, only the negative. Isn't it swell how that works out?
Wells mentioned PRBC to me after lamenting that, "It's unconscionable that we would have this situation in the United States, the richest country in the world, where the banking industry is largely stacked against consumers. If [consumers are] making their payments to the telephone company, the TV cable company and the gas company, they should be able to use that to prove their credit worthiness and rebuild their credit."
Unfortunately, PRBC isn't really set up for consumers to contact them and report how they've been paying off their rent or their telephone bill on time, but I spoke to the company's executive vice president of strategy and marketing Brian Bradley, who said that what you can do is talk to your landlord, your utility company and "anybody you're doing business with and making payments to" and ask them to report your payments to PRBC. They offer what's called a Fair Expansion FICO credit score that mortgage lenders can use to help determine if someone is a good credit risk.
So if you're thinking of buying a house one of these days, that could be a very useful tool in your arsenal if you can convince your landlord, your utility company and other companies you owe money to to report your payments to PRBC. You can even ask your bank, if you pay bills through your bank, to make the report, says Bradley.
And if you try all or some of these suggestions but really want to rebuild your credit even faster, getting a secured credit card might be the answer. Ken Clark, author of The Complete Idiot's Guide to Getting Out of Debt, approves of them as a way of rebuilding your credit, but has a suggestion.
If you're able to successfully apply for a secured card, get a gas card, says Clark, "with a $250 to $500 limit on it. Since you can't go nuts with this at your local mall, your spending will stay under control, and the manageable payments will help you build credit almost as well as opening a major credit card."
Whatever you do, try not to be consumed by the idea that your credit score isn't 700 or above. I think Clark offers great advice when he says, "Honestly, I think credit card scores are a tad overrated and people worry about them too much (although some worry is good). In reality, your score only matters when you're trying to buy a home, car or other major purchase. If you aren't planning on making these in the near future, then your score is irrelevant."
Geoff Williams is the co-author of the new book Living Well with Bad Credit, which was recently featured in a story on Time.com.
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