how to rebuild

[JakeGuy1]

hello all. Just wondering if i could get some pointers on how to rebuild my credit. My chapter 7 bankruptcy was discharged in august of 2011, and i just want to make sure im doing everything possible to rebuild my credit. When i filed, i was in the middle of a car loan, which i have since paid off, so i would imagine that helped a little..? At about the beginning of this year i received my first credit card offer with no fees, so i jumped right on that and have been taking good care of it since (have even received a credit limit increase). I heard that i should use 30% of its balance every month, and pay it off every month, which is what ive been doing. Besides those 2 things, what else could i be doing to ensure my credit gets better?

[justbroke]

Actually, it's not that you should be using 30% and paying it off. It's that you should never revolve more than 30% in any given billing cycle; that is, the balance reported to the bureaus should be less than 30%. For better scores, the balance should be less than 10%, but 30% is a good number to work with. Never ever let your card report with a balance over 90% because that's almost as bad as reported as being over the limit.

The key to good credit is paying on time, not using too much credit (less than 30%), time itself (the longer you have had a credit profile/credit the better, and not needlessly applying for credit.

Other than that... it's all about time! When you get to 24 months after your discharge, you could expect scores around 670 or higher if you are not and have not done other things to damage your credit.

[basketsbears]

Hi,

So that would mean if you have a $300 limit, not to have more than $30-90 on it a month and to pay that in full every month?

I, too, am trying to plan rebuilding. We just filed end of June.

Thanks!

[JakeGuy1]

AIt's that you should never revolve more than 30% in any given billing cycle; that is, the balance reported to the bureaus should be less than 30%. For better scores, the balance should be less than 10%, but 30% is a good number to work with. Never ever let your card report with a balance over 90% because that's almost as bad as reported as being over the limit.

Thank you for the response. could you please explain what that means? Like, how do i "revolve"?

[keepmine]

Thank you for the response. could you please explain what that means? Like, how do i "revolve"?

Revolve means, you are carrying a balance on your credit card month to month.

[justbroke]

Exactly. Revolving means literally to rotate the balance . You don't want more than 30% to report as this will affect your credit more than some other things.

[JakeGuy1]

ok thank you. Just to be sure im understanding this correctly, I should just maintain a balance (30% of the limit) on it at all times? So if it has a $1000 balance, i should charge $300 to it, then at the end of the month pay the minimum of $25, then next month just charge another $25 to it so stays at $300?

[justbroke]

I think this will sum it up...

• Do not revolve more than 10% of the credit limit (eg. if limit is $1,000 do not revolve more than $100)
• If you can't meet the 10% requirement, then make sure it's not over 30% (eg. if limit is $1,000 do not revolve more than $300)
• Don't charge if you don't need to! Just revolve the 10% and pay it down (eg. you charge $100 and minimum payments are $20/month... just pay over 5 months).

I think the key is charging only when necessary and don't just keep charging every month for the sake of charging. At least, that's my theory. The bank likes to see how you handle the payments (revolving line) and the credit score likes to see that you paid on time and that the spending isn't over certain thresholds (10%, 30% and then higher percentages). Of course, maxing out a card is the worse, and from what I can tell, the card is considered maxed out at 90%+.)

[JakeGuy1]

Ok, now im getting it. In regards to your 3rd pointer; after i charge $100, pay it off in 5 months at $20 a month, i should charge another $100 to it and do that all over again?

[justbroke]

Yes, you can do that if you like. I just don't want people to get into the habit of using credit because it's there! What happens is that, sure, we all say we'll charge and then pay it all off before the end of the month. Alas, an emergency happens and you don't pay it off. Then it starts a trend of "revolving" the 90%+ debt every month with no real intention of paying it off at that point.

I call that the "pay to spend" method... that is, you pay the minimum (or more) payment only to spend that minimum payment (or more). Just don't fall into that trap. It's no different than renewing a payday loan every week.