How Can I Rebuild My Credit After Maxing Out My Cards?

Have you ever opened up your credit app and your stomach just dropped because that number staring back at you is not the number it used to be? You got maxed out credit cards, high utilization, and your score is just sliding and suddenly your mind starts racing.What does this mean for my future? Will I ever qualify for a loan again? Maybe? Did I just ruin everything? Well, friend, first off, take a breath. Credit damage is not a life sentence.And today I'm going to show you exactly where to focus so you can start rebuilding this very month. Hey, friend. Ralph Estep Jr. Here.Welcome to Financially Confident Christian, the Daily show, where we work to break that cycle of financial shame and help you live in financial confidence. And today's topic is all about how to rebuild your credit after maxing out your credit cards. Well, let's get right into today's listener question.Listener writes this Ralph, high utilization destroyed my credit score and I'm panicking a little. I feel embarrassed and I don't know what this means for loans and housing and everything down the line.How do I start fixing this month without adding more debt to the problem? I need some concrete steps that'll help me rebuild, but I'm stuck and I'm unsure where to focus my energy.Now, I want to start off with a little jargon explanation. What exactly is high utilization? High utilization means this. The credit scoring companies look at your capacity to borrow.For example, let's say you have a credit card with a limit of $1,000. Well, utilization means how much of a percentage of that do you owe them? So let's just say you had $1,000 credit card and you owe them $100.Then your utilization is 10%. Simple math, 100 divided by a thousand. But here's the problem.When that number gets closer to 900 or 950, then your utilization number is at a high number. And credit scoring companies say, oh, there's a problem here. So here's where we need to start.Your credit rebuilds fastest when you lower that utilization and protect your payment history. It's really two things that you've got to do. So how do we stop the bleeding? We got to start by doing that.Before you rebuild, you've got to stabilize. The way you stabilize is you say to yourself, look, I'm not going to put any more charges on those maxed out cards.I'm just not going to do that anymore. It's so listen, I've lived in this so many times in my life.I'll make a payment and then that afternoon I'm back putting money on that credit card again. And what happens is when you do that, your credit utilization never increases, it never improves.Now, maybe you've got to make some tough decisions right now. Maybe you've got to pause some subscriptions. Maybe you need to switch to a debit card.For right now, I'm not a big fan of debit cards because I don't like the protections they have. But if you're sitting with trying to figure out how to improve your credit score, a debit card might be the way to do it.Because credit scoring rewards restraint. It's all about. And see, you got to understand something. I lived on the other side of the table of this for a long time.I was the executive vice president of a credit union.And when someone would come in to look for a loan, I always looked at their utilization because it usually told me something about their financial situation. Well, if every new swipe is creasing that credit, you're just keeping your utilization high.So your first win is simply don't add any more damage to it. Pay with cash, pay with a debit card, or just stop spending on that credit card altogether.And then you really have to think utilization strategically. Credit scores heavily weigh this utilization. Like I said before, it's how much of your limit you're using.Another example, let's say you have a credit limit of $5,000. If you owe $4,800, that's a 96% utilization rate. So your first goal is to get that below 90% and then below 70%.Really what they're looking for is for it to be below 30%. That doesn't mean you have to pay it off all overnight. I'll tell you one thing my son does. My son uses his credit cards to the extreme.He makes payments every week. He uses the credit card to get the points, he gets the bonus miles and all those sort of things, but he never lets that utilization get high.But when you cross over those thresholds, that's when you really see your score take a hit. So even if you can reduce it from 90% to 50% or 40%, you're going to see a huge improvement in your credit score. Here's another little quick tip.Nothing you can do to really resolve your credit issues is make payments before the statement date. Most people don't even know you can do this. Your balance is typically reported when the statement closes, not when the payment is due.So that's a little insider tip.If you see that the credit card statement closes on a particular day, make a payment before the statement closes because then you can reduce what gets reported to the credit bureaus. Most credit companies report after closing date what the balance was.So if you know your credit card closing this Friday, make a payment Wednesday because then what it'll do is it'll show that utilization percentage that as a lower number, hey listen, 200, $300 before reporting can lower utilization a lot. Think about that $1,000 example. Let's say it's sitting at $500. Right now you're at a 50%.Well, even if you make $100 payment, you can reduce that to 40% and that's what shows up with the credit bureau. And that's what the credit bureau is going to use to configure your score.Another thing you've got to do, you gotta protect your payment history at all costs. Maybe you don't have the ability to pay it down completely, but payment history is the biggest factor in your score.You've got to at least be making those minimum payments. As I've talked about on the show before auto pay for at least the minimums, put calendar reminders, put bank alerts.Because one 30 day late mark does far more damage than high utilization alone. Those on time payments are your foundation for building and restoring your credit. Which leads me to this. Add stability, not more debt.Do not open five new cards trying to fix this. I've seen some of these clowns on the Internet, these credit gurus.First thing they tell you to do is go get five more credit cards and spread the balance across those. Yes, that will reduce your utilization. It'll happen really quickly. But like most people, you're going to use the money and you're going to spend it.And now all of a sudden you've got five times the problem that you had before. The other problem with that is you lose your history of your credit report. So keep those old accounts open.I get so frustrated when I hear people say close those old cards, put it on a new one. I don't believe that you should close any cards unless they're charging you an annual fee. And here's a little, little secret.Call them and see if they'll waive the lower fee, but focus on lowering the balances consistently. Maybe you need to have a little side business. You need to sell something.Apply your tax run is the time of year when maybe you could take that tax refund and pay down your debts. Because slow, steady reduction restores credibility and it restores your credit.And listen, it's not going to happen overnight, but your score can rise again. So here's your win for today. I want to encourage make one principal payment before your next statement date.Just go grab your credit card statements and write down what your statement dates are. And then strategically make those listen, you're going to pay it anyway.Make those strategic payments a day or two before the closing date and then you'll be giving yourself a little hands up on your credit report because that action will break the panic and that momentum builds movement. Let's get right to our Bible verse today.As you all know, Romans is one of my favorite books of the Bible and this one comes from Romans chapter 13, verse 8 and it says let no debt remain outstanding except the continuing debt. To love one another for whoever loves others has fulfilled the law. And I just love this one.Today God calls us towards financial integrity and progress. He's not asking you for perfection. It's not asking you to always do it right.There's grace, but movement towards freedom is what we're trying to get to. So do that today. How about we pray together, Lord, you see the anxiety my friend feels right now?You see that embarrassment, that fear about the future. So Lord, just remind them that this number doesn't define their worth in your eyes. Give them discipline to stop the bleeding.Give them wisdom to lower their balances strategically. And Lord, give them patience to rebuild this step by step. We ask you right now to replace that panic with clarity.Replace shame with confidence, Lord, and guide him towards financial restoration that only you can do. And we ask this in Jesus name. Amen, friend. Credit damage is temporary. It doesn't need to be a life sentence.And when you apply some faithful steps, you can create lasting recovery. Well, I would love to hear your stories.If you've got a story about recovery or story about how you've made a difference, you can go to financiallyconfidentchristian.com/voicemail works just like you're calling a friend. Just go to that website, financiallyconfidentchristian.com/voicemail. Leave me a message. I'd love to listen to you.I'd love to play your questions on the show. Well, thank you so much for joining me today as I always encourage you stay financially savvy. May God bless you and you have a truly great day today.