Home Mortgage Alliance Corporation (HMAC)

How to build your credit score back up

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Published Date 2/14/2019

Some once asked me: What's a way to build my credit score back up if I'm constantly broke?

Your credit score has little to do with your being broke. It is a function of two primary factors: your demonstrated history of meeting your financial obligations and your use of credit. Let's look at the first one first.

Assuming that you have some regular source of income (job or reliable self-employment), a pattern of late payments would indicate that you are not in control of your finances and/or that your outstanding credit is beyond your ability to repay.

If it's the first, and you miss payment deadlines because you simply lose track of when payments are due, set up automatic payments from your checking account. You should at least set up a minimum payment to avoid wasteful late charges.

If your present obligations are so high that you can't cover them, you have two non-destructive choices: rearrange your budget so that you can meet the obligations or figure out a way to generate more income, such as picking up overtime hours if available or getting a part-time job to supplement your income.

You should establish a budget, starting with your current actual outgo. What can you cut out, at least temporarily? Starbucks? Restaurant meals? Can you cut back on entertainment? If there is any "fat" in your budget, be merciless. You may live like a monk for a time, but that's temporary.

If neither of those is possible, you should come clean with your creditors, tell them you don't have the ability to meet the minimum payments and make arrangements with them to pay them back at a rate that you can manage. They will close your account, but at least you'll be on a path toward stability.

The final option, one that you should do all that you can to avoid, is bankruptcy. I'm not going to talk about this here, as that conversation is best held with a lawyer.

You got into the place you are now by your own doing. You may not believe this, but you can get yourself out of it. Whether you are hopelessly buried in debt or just short on cash at the end of the month, you can get yourself to a better place.

Your credit score is the least of your concerns. You'd do much better to focus on what led you to your current place of discomfort. Once you've dealt with your financial condition and the habits that got you there, your scores will increase on their own.

Good luck!

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