While building up credit lines to demonstrate an ability to access credit for additional loans acts as a fantastic strategy for building up long-term credit from a respectable starting point, it can sometimes seem particularly difficult to build up credit from a negative position. If an individual has no credit score, banks will be more willing to take a risk on lending them money in comparison to a person that has a negative score.
That being said, there are still ways to pull a credit score back from the dead. Specifically, an individual’s ability to show a history of making repayments to existing debt makes up such a large part of their credit score that it provides the best foundation for a strong financial plan.
Payment histories are weighted in accordance to their size and their frequency. This means that small bi-weekly payments will have a similar weighting to larger monthly payments. By scheduling payments in accordance to a borrower’s financial situation, a financial planner can make sure that a credit score is best adjusted to reflect a careful credit building strategy.
For example, a borrower may choose to make weekly interest payments, and then structure individual principal payments at the end of each month to show a series of high frequency payments, as well as a single high-volume payment in every period.
Alternatively, borrowers may choose to pay their credit cards on a monthly basis, their lines of credit on a weekly basis to keep the principle down, and mortgages on a monthly basis to manage the interest rates. The end result is the creation of an entire payment portfolio that demonstrates an ability to manage various kinds of debt, payment periods, and payment magnitudes.
The final way that an individual might try to manage their payment history account is by taking out cash secured debt, and then repaying it as a time planned loan. This strategy is best used by individuals with extremely secure credit because it allows them to build up a credit history again. Even though the loan itself is secured by cash, it is returned after the debt has been serviced, and opens up new opportunities for debt.
By demonstrating a willingness to cooperate with the bank through the provision of cash-collateral, the borrower is able to come up with a repayment schedule that will reflect positively on their credit profile. Ideally, as payments are made, the individual will then be able to begin applying for smaller debt instruments, such as credit cards. From here, the long-term goal would be to create enough of a credit history to work into a car or mortgage loan, with a rate that is manageable within the borrower’s current means of income.
