It may take months or even years but eventually the last dollar does get settled, the taxes are paid, and peace reigns across the land…almost.
The last step in this process for me was starting to convert cash currency back into the currency of credit score.
It’s worth noting that you may be able to skip this step entirely. Credit reports get scrubbed every sevenish years and if there are no real reasons you need to improve your credit score more rapidly than that, you can feel free to just ignore it and be on your merry.
However, if you do have the dream of owning a home or getting a government security clearance then it’s time to take the final step to improve your credit score: get back into debt. Pardon me while I hyperventilate into a paper bag for a moment.
As much as it seems counter-intuitive to put more debt on your newly-cleaned record, making payments on a loan is the fastest way to demonstrate that you’re now a reliable and trustworthy member of the financial community.
Bear in mind that as you get back on your feet again it’s not against the rules to ask for help if you need it. I’ve had plenty of help along the way with both financial and moral support. To quote that angel in that one movie: “No man is a failure who has friends.”
In my case I took a large gift from some of those friends and used it as a down-payment on a car loan. Putting down cash on a physical asset made me attractive to a bank because they know that:
1. They can keep my down payment
2. They can repossess the car.
Those two facts mean that the risk to the bank is extremely low even though my credit score was abysmal. Now it is true that if your credit score is bad you will pay more in interest but that’s the cash cost of converting your money back into a credit score. No currency exchange is free, after all.
If the loan term is long enough, however, it may be possible refinance it once the buyer’s credit score starts to rise. In my own case, after I was approved for the car loan my FICO score went up 44 points and then continued to climb every month or so after that.
If you don’t particularly need a car there are other types of secured loans available that can achieve the same basic effect. I was extremely careful to only accept a deal that made sense for my budget. Repeating the same mistakes of getting in over my head was not an option.
Once you’re on that footing, it’s also time to brush off all those financial advice books for non bank-hackers and start looking at things like savings accounts (yes, they still have those) and retirement investing. Freedom is only as good as the things you do with it.