Credit recovery advice: Start slow, do it right this time

Don't seek out higher credit limit cards while rebuilding your score

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.

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Question for the expert

Dear Credit Guy,
I have been in bankruptcy for a year and a half. I have a MasterCard with a credit limit of $375. I am trying to rebuild my credit, but would like to get a credit card that has a higher credit limit (approximately $750-plus). Is there a card that will offer me a higher credit limit with my bankruptcy or should I wait for a while? I do not know what my credit score is exactly. -- Clifton

Answer for the expert

Dear Clifton,
One of the first things I recommend doing is going to and obtain a copy of your free credit report. For a nominal fee, I suggest you also purchase your FICO score. Everyone -- no matter what their circumstances -- needs to know what their credit report looks like and what their FICO score is. The current economic downturn and credit crunch we are experiencing will make it more difficult to qualify for a higher limit credit card with a current bankruptcy on your credit history.

I'm not sure why you need a card with a higher limit. If you are using your current card and making payments on time as agreed, then you are building the positive information on your credit reports needed to improve your credit score. In this case, bigger is not necessarily better.

Rather than try to get another credit card in this much tighter lending environment, a better idea would be to secure a much easier loan to obtain: a passbook savings loan. In order to accomplish your goal of increasing your FICO score, you need to establish different types of positive credit accounts. Your credit card account is a revolving credit account and the passbook loan would be an installment loan. The way the loan works is you make a deposit with a bank or credit union and then borrow the amount of your deposit in a fixed rate term loan of 12 to 18 months that is paid back with regular monthly payments.

A savings loan is easier to acquire because your deposit is used as collateral. If you default, the bank simply takes the money owed them from your savings account. Not that defaulting would be a good idea for you; it is just much less risk for the bank, which is why these loans are easier to obtain.

My concern regarding your request for a higher limit credit card is that you want to charge more than the $375 current credit limit on your card. Considering you are still involved in a bankruptcy, this could be a slippery slope. I would encourage you to incorporate any large item purchases into your spending plan that I know you have established and save for those purchases rather than charging them on a credit card.  Those that fail to plan can plan to fail.

The best way I know to avoid any future financial problems that could possibly end with a bankruptcy is to save money for large purchases rather than charge them on a credit card and to save for unexpected expenses. I have said this before in previous columns, but an emergency savings account with three to six months of living expenses saved will assure that you are prepared for the unexpected financial curve balls that all of us can and have faced before.

Clifton, with a little patience and firm command of your personal finances, you will see your credit score slowly improve. You won't see overnight results, but each month that goes by will see an improvement if you are paying all your accounts on time and as agreed. Patience and time my friend, patience and time.

Take care of your credit!

See related: Starting over after bankruptcy

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Updated: 11-14-2018