Set Your Goals, Then Score Good Credit

Dear Debt Adviser, I am a 40-something woman. I was married for 15 years, during which time we had big issues with money management. I filed bankruptcy twice, and the last time was in 2004. Now I am divorced and trying to rebuild my credit. I am getting so frustrated because I don't know what to do. The only large bills I have are a car payment ($435 per month) and rent ($720 per month). My credit score is 544. What advice can you give about how to bring my score up? Also, roughly how long do you think it will take? -- Trying So Hard

Dear Trying So Hard, Glad to help. Good credit and good credit scores aren't rocket science. In the two-plus years remaining before your bankruptcy drops off your credit report, you can build some serious credit to launch you on your way to financial health.

Below, I will tell you some actions to take to repair your credit. But before I do, there are two things not directly credit-related that you need to do to succeed. First, you need a budget. Second, you need savings.

A budget or spending plan puts you in charge of every dollar you spend. You're in charge of where your income goes instead of some advertiser with a slick marketing program. A spending plan starts with you envisioning your personal goals and then allocating your income to make your dreams happen. The goals are a powerful incentive to not spend more than you have, which leads to using credit to satisfy impulse purchases.

As part of your spending plan, one goal must be to pay yourself first. What does that mean? It's simple: Before you do anything with your money, some of it goes into a savings account. Without emergency savings, every time an emergency comes up you will need to use credit to cover it. This will make you more vulnerable when the next emergency comes up. Soon, you'll be overextended again. Saving is essential to good credit.

Before you know it, 2014 will be here and your latest bankruptcy will come off of your credit report. So with your goals, a spending plan and savings in hand, brighter credit days are certainly in your future. For the next two and a half years, until the bankruptcy is no longer weighing down your credit score, concentrate on building a positive credit track record. Here's how.

First, if you have any overdue accounts, pay what is necessary to get them current as quickly as possible. For example, if you missed a car payment and it is being reported as 30 days late, catch up so your account is reported each month as "paid as agreed." Payments that are on time and paid as agreed are essential for improving your credit score.

Second, your credit score will thank you if you add some positive accounts to your credit history. A good way to start is a secured credit card. These cards are secured by a deposit you make with the financial institution issuing the card. They typically have low credit limits. Shop around for the best deal. Be sure the card issuer reports the account activity to the major credit bureaus. You can start your search here.

You might also apply for a retail store credit card. These cards are typically easier to qualify for, but usually carry higher interest rates. Be careful with them, and only charge what you can pay off in full when the statement arrives.

Third, you could look into a passbook savings loan. These are installment loans secured by your deposit into a federally insured financial institution. The positive payment information helps improve your credit, and illustrates to potential lenders that you can handle fixed-payment obligations.

Adding positive information to your credit reports over the next two years will boost your credit score. Congratulations on committing to managing your money well, and keep up the good work.