Great Article on Rebuilding Credit

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How to Rebuild Credit

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 How to Rebuild Credit story

When you’re new to credit, you don’t yet have a record of paying as agreed. Creditors are reluctant to extend credit because they don’t know anything about you.

» MORE: See your credit score for free with NerdWallet

If you have poor credit, though, the problem is that they do know something about you — and what they know makes them nervous about the chances you’ll pay as agreed.

That’s why rebuilding credit can be different from building credit and usually takes longer. But the steps — primarily paying on time and using credit lightly — are largely the same.

In this article:
How long does it take to rebuild credit?
How to get started
5 strategies you can use
Next steps

How long does it take to rebuild credit?

Credit missteps do eventually fade into the past. The impact on your credit score and the time it takes to recover depends partly on how big the mistake and how recent. Late and missed payments, judgments, and collections stay on your credit reports for seven years. Bankruptcy can linger for up to 10 years.

However, you can begin repairing things right away. You should begin to see improvement as soon as you start accumulating positive credit information to help counter the big negatives.

Rebuilders may have one advantage over those starting from scratch: existing credit accounts. If you have accounts that weren’t closed by lenders because of nonpayment, you can use them to get back on the right path, says credit expert Barry Paperno, who blogs at Speaking of Credit. Pay down those balances, then keep them at or well below 30% of your credit limit. And pay on time. Both will help the negatives sink into the past and have less impact on your credit score.
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How to get started

Start by checking your credit reports. You’re entitled to a free credit report from each of the three major credit reporting agencies every year.

The reports can look daunting (here’s a guide to make it easier to read them). But it’s important to check for information that could hurt your credit score: inaccurate information or debt that is too old to be reportable (longer than seven years since an account first went late, assuming no further activity on the account, for example).

If you see an error, dispute it. Your credit score is only as good as the information used to calculate it. So if someone with a similar name has been late with bills, don’t let that hurt your score.

Next, look at the patterns that got you into trouble. You may need to go back to basics, like making sure you’re working with a realistic budget.

If you prefer to get one-on-one help from a professional, consider going to a nonprofit credit counseling center for help with budgeting and a consultation on options for getting back on track. If your finances are very unstable, bankruptcy may be the most realistic option.
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5 strategies you can use

Rebuilding credit uses five basic strategies; the first one is by far the most important:


Pay your bills and any existing lines of credit on time, every time. No single factor affects your credit scores as much as your history of on-time payments. If the problem is forgetfulness or disorganization, automate the payments. When you are rebuilding credit, you cannot afford a mistake like missing a payment.

If bills have already gone to collections, though, prioritize the ones where your account is still in relatively good standing. Collectors may make the most noise, but they aren’t your top priority.

The other big influence on credit score is how much of your available credit you use. It’s called credit utilization, and you want to aim for 30% or well below.


If your credit card accounts were closed, you may need to start with a secured credit card. With this card, you deposit money upfront as collateral, but then it works like any other credit card. Ask about the details before you choose a card, and shop around. Make sure the issuer reports payments to all three major credit-reporting bureaus. Avoid using over 30% of your credit limit, which is typically equal to your deposit, but if you have very bad credit, the issuer may require a higher deposit and set your limit lower.


As the name suggests, a credit-builder loan has one purpose: to help you improve your credit profile. You’re most likely to find one at a credit union or community bank. You’ll need to be a member or customer, and you’ll need to show proof of income and ability to repay.


You can ask someone to add you as an authorized user on a credit card. A few cards allow primary cardholders to set spending limits for authorized users, which could make someone feel more comfortable about adding you.

Becoming an authorized user won’t have a huge impact on your score because you aren’t legally responsible for debts on that account. But it can help your score if you’ve had accounts closed by creditors, because the longevity of this account will beef up the overall age of your credit accounts (which factors into scores). Being an authorized user can also hurt your score if the account holder doesn’t pay the bill on time, so make sure you ask someone with good credit habits.


If you’re having a hard time getting access to credit, ask a family member or friend to co-sign a loan or credit card. This is a huge favor: You’re asking this person to put his or her credit reputation on the line for you.

If you’re late with a payment, the co-signer’s credit score may drop. The co-signer may also be turned down for additional credit, since they’re responsible for repayment on this account. Use this option with caution, and be certain you can repay. Failure to do so can damage the co-signer’s credit reputation and your relationship.
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Next steps

No matter how you got in the frustrating situation of having to rebuild damaged credit, there is a way out. The sooner you come up with a plan, the sooner you can put it behind you.

Pick whatever strategy or combination of strategies for your situation, then monitor the results. You can get a free credit score from a number of sources; the main thing is to pick one score and follow it over time to get an accurate view of how your efforts are paying off.

Bev O’Shea is a staff writer at NerdWallet, a personal finance website. Twitter: @BeverlyOShea.

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Great read from about the automotive buy here pay here program.

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Enter The Buy Here Pay Here Industry With Minimal Headaches

March 2007, Auto Dealer Today - WebXclusive

by Jennifer Murphy Bloodworth Also by this author

The life of the Buy Here Pay Here (BHPH) dealer is not an easy one, but it is a profitable one if standards are set within the business and everyone follows them.  The best results are often achieved by those with a very structured business model. In this business set policies and procedures are a requirement because inconsistent underwriting and collection procedures are detrimental to your success.

In the BHPH business the credit-challenged customer is your lifeblood.  Most customers who walk on your lot know their credit is less-than-perfect.  Some simply need transportation, while others want a vehicle and need a credit makeover.  Customers you might not look at twice on a franchise lot will be your best paying customers on a BHPH lot.  The majority of these customers are honest people that aren’t afraid to work hard. 

Getting Started:  Building a BHPH operation

When opening a lot, several things need to be considered.  Location, personnel, training, procedures, necessary forms, inventory, advertising and much more are on the to-do list.  If you’ve been around the BHPH block before, you can probably open an operation without too much assistance as long as you have a large quantity of cash for inventory.  But if you’re new to this profitable niche of the automotive industry, you might need a “business in a box” solution. CarBiz, based in Sarasota, Fla., offers dealers a BHPH business model that is about as close as it gets.  

Their Dealer Controlled Financing (DCF) business model provides all the necessary tools to start a BHPH operation from the ground up.  After attending training classes, almost any business-minded person with sufficient capital can open up a lot; no prior in-depth BHPH knowledge is required.  The capital required to start-up this program is just under $11,000 plus inventory cost.

After signing up for this service, dealers receive a turnkey start-up package that includes:

  • DCF license
  • A policies and procedures manual
  • Management System Plus software (designed specifically for BHPH operations)
  • An on-site visit from a consultant
  • Unlimited over-the-phone consulting
  • Unlimited attendance to manager training classes
  • Forms necessary to start a BHPH lot (more can be ordered as needed)
  • Two on-lot training manuals
  • A popcorn machine
  • A soda cooler

Once the start-up of your operation is complete, active DCF dealer status can be maintained for roughly $200 per month.  This status entitles a dealer to a monthly composite of operational data, continued over-the-phone consulting and the ability to continue attending ongoing training classes.



The Go-To Guide: A Thorough Policies and Procedures Manual

In any BHPH operation, set practices must be in place for consistency and accountability.  A written manual that outlines all policies and procedures is the key to success (and fewer headaches).  A complete policy and procedures manual should cover inventory, sales, operations, and collections.

Jeff Shafer, vice president of Afford-A-Car, testified to the completeness of the DCF policy manual, “The thoroughness of the policy and procedural manual is unprecedented… It’s written very simple, so basically all you’ve got to do is be able to read and you can run a store.” 

Al Jenkins, general manager of Instant Auto Credit, has used this program since 1993 and believes the policies and procedures manual should be followed just as it’s written.  According to him, “If you try to stray from the basics, that’s when you normally run into problems… Every time we stray a little bit, we find that when we go back to the basics, we’re more successful.” 

Another profitable operation is in Pennsylvania.  Sellersville Charge-A-Car Vice President Tom Brandis as been using this model since 1992 and runs two BHPH lots.  “The policies keep the employees in line.  I don’t allow them to deviate too much without making a phone call to me.”

Yardstick for Improvement

Whether you are a member of a twenty group or purchase reports on your industry, its good practice to measure your performance and to know where your business is lacking and/or thriving.  One major advantage of being an active DCF dealer is that you receive monthly composites which allow you to analyze your performance by comparing your performance to other DCF lots and benchmarks.  The electronic composite consists of four pages.

Page 1 – Sales – This page includes year-to-date and month-to-date figures on retail finance, retail cash and wholesale.  Another section includes figures to compare your results to other active DCF dealers.  Aside from this data there are three bar graphs.  The first graph, “Units Financed,” shows the number of units your lot financed for the month and how many units the top 10 DCF dealers financed.  The second graph, “Average ROR,” shows your rate-of-return percentage compared to the top 10 dealers’ RORs.  On these graphs, the top 10 are identified by number, not name, so the names of dealers aren’t disclosed.  The third graph, “Retailed Financed Sales,” displays your monthly sales totals for the past two years.

Page 2 – Assets – This page includes accounts receivables balances, inventory, delinquency and the comparison to the average, median, minimum and maximum figures for active DCF accounts.  Graphs are also included to compare your figures to the top 10 dealers.

Page 3 – Bottom Line – This page includes information on bank deposits, profit and loss, and year-to-date charge off analysis.  Also included are the figures to compare your results to other active dealers.  Two of the graphs compare you to the top 10 dealers, while the remaining two graphs include the dealer average, minimum and maximum figures alongside yours for comparison.

Page 4 – Graphs – This page consists of eight graphs including information about the past month.  They all compare your figures to average, minimum and maximum dealer numbers.  The graphs are:

Average Selling price 
Average Gross Profit 
Average Rate-Of-Return 
Average Cash-In-Deal 
Average Cash Down 
Average Contract length 
First Run Delinquency 
Monthly Collection Rate

When You’re Ready to Grow

After establishing their first BHPH operation, dealers often see the potential for a second operation, but choosing the location can be difficult.  The active DCF dealer will be assisted in location selection, generally 10 to 15 miles from the original location.  There is another start up fee for an additional lot of $7,500.  Other BHPH dealers feel that the distance is not as important as the control factor of the operation, opting to open lots as far away as 75 to 100 miles from the original location.

Afford-A-Car in the Dayton, Ohio, area has opened four additional locations since opening their first lot in 1992.  Each store follows the same structure which allows for consistency throughout the organization.

Tips for the Hands-off Dealer

Although the majority of BHPH dealers are not hands-off dealers, it is possible to run multiple locations with minimal headaches if you hire a general manager to keep tabs on how your business is running.  Another option is to hire a consultant to help you keep watch over your performance, or if you are a CarBiz client you can subscribe to an Additional Consulting Package (ACP). Michael Downey, software technology manager at CarBiz, said, “[ACP] is what we like to call our ‘Watchdog’ service, which is really geared toward an off-site owner who wants that third party to see how the operation is going.”  With this service, the owner and managers receive weekly phone calls and three onsite visits a year to help analyze how the business is running. 

Jenkins of Instant Auto Credit utilizes the Additional Consulting Package, which costs $1,000 per month.  He performs spot checks at the three lots throughout the week, but he said, “By having all their programs and guidelines in effect, I don’t have to manage the stores as closely…following the programs and their weekly calls frees me up to be doing other things.” 

Exceptions Can Be Made

Every dealer agrees that the best advice is to adhere to set practices, but understand that exceptions have to be made sometimes. Not every customer will fit into the underwriting guidelines you have defined.  If you never make exceptions you will lower your risk, but you may miss some good paying, loyal customers along the way. So, each customer must be viewed individually.

It is among these possible exceptions that many dealerships tend to get off track.  An exception maker must be designated.  If every sales associate has the ability to make exceptions, a dealer is likely to wind up with inconsistent buying, adversely impacting the portfolio performance.  If after a sales associate has checked off all required items and a potential customer doesn’t meet every requirement on the underwriting list, but the associate believes an exception could be made, an exception maker is called to review the deal and make a decision.  This way, the same person or small group of people is looking at all questionable deals and making all the decisions. 

Afford-A-Car in Ohio has a management office to manage all five of their lots, and all individuals designated as exception makers work out of that office.  This design allows them to manage effectively without any additional consulting.   The key is underwriting control by a few approved decision, or exception, makers.

Successful BHPH operations, regardless of the number of locations, all seem to have common traits – committed dealers who set policies and procedures and follow them without fail.   The most successful also continually measure their performance against their peers to improve their own performance.

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