What Is a Good Credit-Building Time frame?

Starting over or starting from scratch with your credit? Be patient.

Building up a brand-new credit history or re-establishing credit after some credit missteps (such as late payments) takes time.

Give yourself at least a year to see some progress with your credit.

Payment history accounts for 35% of a credit score and establishing or re-establishing your credit with a solid year of on-time payments on a credit account, such as a credit card or credit builder loan, is a good way to go.

Building Credit with a Credit Card

A secured credit card is a good credit-building option. With a secured card, you make a deposit with a lender and your deposit is used as a credit line.

Make sure to choose a secured card from a lender that reports to all three major credit reporting agencies — Equifax, Experian and TransUnion.

To build credit with a secured card, make a series of on-time monthly payments and use no more than 10% of your credit line. Stick to small purchases that you can pay off with ease each month.

After a year or more of on-time payments, reach out to your lender about applying for an unsecured credit card account.

Credit Builder Loans

Another credit building option is to apply for a credit builder loan from a credit union. These loans, which have terms of six to 18 months, are good alternatives to credit cards and good credit building tools in their own right.

With a credit builder loan, the money being borrowed is placed in a savings account.  And once you pay off a credit builder loan through a series of payments over the course of the six- to 18-month term, you will get access to the money in the savings account.

Loan amounts for credit builder loans can be small, just $500.  So there’s no need to borrow a lot of money to build a healthy credit record.

For maximum credit-building, choose a credit builder loan that reports to all three credit reporting agencies.

How to Get a Secured Credit Card

If your credit is damaged, or if you never established credit at all, a secured credit card might be the thing for you. With a secured card, you put down a deposit, usually $200 to $500, which becomes your collateral. Manage the card responsibly and you’ll get the deposit back.

First: Learn Your Options

Before you shop for a secured card, find out your credit score to learn what you qualify for. Why? Well, rejection stings, for one thing.

But more importantly, knowing your credit score helps you determine which cards you’re more likely to qualify for. The better your credit, the more options you’ll have, including money-saving choices not available to those with credit scores lower than yours.

Not sure if your credit is good, bad or fair? That’s not unusual. Here are some tools to help you find out:

• Subscribe. Numerous banks and other companies sell credit scores as part of a subscription to a monitoring service sold to help guard against identity theft. Or you can shop for a credit monitoring service. This may be helpful if you want to monitor your progress with more than one credit reporting agency.

Compare Secured Cards

Just as if you’re buying a car, compare the features and costs of each card. Look at the fine print on each card, including:

• Credit reporting. Get a card that builds your credit by reporting to not one or two but all three of the major credit reporting agencies – Experian, Equifax and TransUnion.
• Graduation features. Will the card let you raise your credit limit over time, either by increasing the size of your down payment or by earning a higher limit through responsible use of the card?
• Annual fees. Unfortunately, you may not be able to avoid annual fees. Make sure you do your research and compare annual fees across cards to find the best deal.
• APR. The annual percentage rate shows the card’s interest rate on your unpaid balance. APR can vary for different services – cash vs. purchases, for example. It may change, too. You might, say, get a low introductory rate that bumps up after six months. Be aware of any potential changes so they don’t take you by surprise.
• Other fees. Avoid application fees, if possible. Some cards have them, others don’t. Watch for and compare the host of other possible fees, including fees for balance transfers, over-limit charges, late payments, cash advances and other costs.
• Rules. Do the tedious but important due diligence: Read and compare the detailed rules accompanying each card so you don’t get tripped up by incurring surprise fees and possibly further damaging your credit.

Who Will Inherit Your Debt When You Die?

Student Loans

Federal student loans can be canceled upon the death of the borrower. In addition, federal loans typically do not require a co-signer, so there shouldn’t be an issue there. Parent PLUS loans are also typically canceled upon the borrower’s death. However, private student loans are not always canceled upon the borrower’s death, and they usually do require a co-signer, which means a parent, spouse or other co-signer may be held responsible for the loan if the student borrower dies before it is repaid. In fact, some lenders or servicers will accelerate the payment upon the borrower’s death, meaning they expect the balance to be paid immediately.

Who Will Inherit Your Debt When You Die?

Auto Loans

If you don’t own your vehicle free and clear, your auto loan debt could create problems for your loved ones. Again, if there is a co-signer on the vehicle loan, that person will automatically be responsible for the balance. And spouses in community property states may be responsible for the debt as well.

But what if there is no co-signer or spouse who is liable for the debt? Heirs may have a couple of options. One would be for a family member, such as a child, for example, to purchase the vehicle and pay off the debt. Another would be to contact the lender to find out whether it is possible to assume the payments. And the other option would be to return the vehicle to the lender. The lender will then sell it, but if the price they get is less than what is owed, the lender may try to collect the balance from the estate (if there is one).

Who Will Inherit Your Debt When You Die?

The IRS Wants Its Share

If a debt is not repaid, or if it is formally canceled due to death, there is another potential complication: taxes. The lender may report that amount on a 1099-C form. Canceled debt is considered taxable income unless the borrower qualifies for an exception or an exclusion. At a minimum, one of these forms may require help from a tax professional to make sure the “income” that results is handled properly on the tax return. Or worse, a co-signer could be saddled with a big tax bill due to this phantom income.

Who Will Inherit Your Debt When You Die?

Cleaning Up a Debt Mess

If a spouse, parent, grandparent or other relative has died recently, the person who is handling the estate (usually called the “executor” or “personal representative”) can order a copy of the deceased’s credit reports to find out which debts are still outstanding. Here’s how to order a credit report for someone who has died. Getting a credit report for someone who is deceased is also important because their information is sometimes stolen to commit identity theft.

While you are at it, it’s not a bad idea to get your own free credit report from all three credit bureaus to see which debts are reported. You can also get your credit score for free, but there really isn’t a point in getting a credit score for the person who is died.

Be very careful about taking money or property that belonged to the person who died if there are debts outstanding. Even if you aren’t personally responsible for those debts, creditors may have a claim on the property of the estate, and may look to you for payment if you took assets out of the estate without following the proper procedures. It’s best to get advice from an estate planning or probate attorney first.

Who Will Inherit Your Debt When You Die?

Protect Those You Love

If you have debts that would be a burden to your loved ones upon your death, try to get adequate life insurance so those debts can be paid off. Most financial experts recommend a term policy rather than credit insurance that only pays off a specific loan; however, if you are uninsurable due to a medical condition, your choices may be limited.

Also double check your insurance beneficiaries periodically to make sure insurance proceeds will go to the person actually responsible for the debt. If, for example, you were married to someone else when you first obtained your life insurance policy and you named them as the beneficiary but never updated it, they will get the proceeds — even if your new spouse is now stuck with debt you’ve incurred recently.

Of course, if you can get out of debt, that’s the best way to ensure your heirs won’t be stuck with your debt when you die.