Stage #4 of the Credit Restoration Process – Construction

When working to increase credit scores you cannot simply focus on removing the bad items from your report. Good credit scores require good credit history so if you don’t have any good credit history you need to start building that history. The biggest mistake in this stage is to jump too quickly into starting new credit…

The final stage of the restoration process is called Construction. We call it construction because this is where you start building back your credit.

You cannot simply remove bad items from your credit file. The scoring models need something positive to look at. If you have less than 3 positive trade lines or accounts that have been reporting for at least 12 months, you should consider obtaining a pre-paid credit card as a start.

Again, Be careful…

If you obtain a credit card before you go through stage 3, the collectors may be able to see that you have credit available and they will be less likely to give you a good settlement for your collection accounts in negotiation. That is why stage 4 should wait until after you have completed the negotiation stage.

The best mix of credit for you to obtain will be 1-2 revolving credit accounts that are Visa or MasterCard accounts. Do not apply for department store accounts, as they will not help you and might actually hurt you.

In addition, you should also seek an installment loan, like a car or boat loan.

Be careful not to apply for more than 1 or 2 accounts at a time. Inquiries are still important to the credit scoring models, and if you have too many inquiries in a short period of time, the models will think you are seeking to establish new debt and they will start to penalize you.

This is why Secure Credit cards are so important. There should be no credit check involved because you’re providing money up front that secures the credit line with the bank. $500 up front gets you a $500 credit line, and it acts exactly like a normal credit card. In fact, the big three credit reporting agencies have no idea that it’s a secure credit card. Remember: don’t apply for secure cards until you are well into stage 3 of the restoration process. Otherwise, it may hurt you and cost you more money. Be patient and allow the process to work.

Constructing new credit will take some time, but not as long as you may think. Two of the three agencies will give you credit for any new accounts reporting right away: 30-60 days from the day the new accounts are open. The 3rd agency will give you credit after 90 days of reporting. Just remember – make sure any card you choose reports to all three of the major credit reporting agencies.

One last thing, and this is important: Don’t use Capital One. Not because I don’t like them as a company but because they do not report beneficially to your credit. A key element of revolving credit on your credit report is something called a Debt Utilization Ratio. The way that Capital One reports credit cards can artificially display a bad debt utilization ratio on your credit file. The explanation is too involved for this short video, so for now, just understand that you want to avoid Capital One during your credit construction.

That concludes the basics of Stage 4, of the most powerful credit restoration process available anywhere. There is so much more to the restoration process, and knowing the rules, and being aware of the pitfalls, is critical. CPR’s Credit Success Pack is FREE and it is essential if you want to regain, build or maintain a good credit rating. Make sure you check that out on this site and get your copy today. It’s available for instant download so there’s no waiting to get it.