Bad Credit is something that plaques almost everyone at some time in life. Whether you are a college student who got carried away with your new found credit or you are rebounding from a financial disaster, rebuilding your credit can be a monumental task.
When contemplating credit repair remember that (1) you are not alone: with the state of this nation’s economy, millions of honest, hardworking people are having financial problems. Additionally, on the average one million people will file bankruptcy this year. (2) you have the legal right to repair your own credit: by standing up to creditors, you can often gain additional time to pay, get late fees dropped, and settle debts for pennies on the dollar. (3) no credit is too bad to repair: even if you have gone through a financial tragedy you will soon qualify for some type of credit. If you begin to rebuild your credit slowly and sensibly, you can qualify for a major credit card or loan within two years.
Following are a few tips to use when rebuilding your credit:
1. Understand your income and expenses-the essential step in credit repair is to understand where your money comes from and where it goes
Develop, adopt and implement a budget or spending plan-track your income and expenses for a minimum of two months
Select a Sunday to begin recording your expenses-recording EVERYTHING-even a pack of gum or a bottle of water-its amazing how much is spent on little items-over the course of a month or so it really ads up
Carry your expenditure form with you at all times-its easy to forget to record small items
Be sure to include fees such as ATM service fees, bank fees, etc
Don’t record any expenditure made with a credit card-only cash or cash equivalent items
At the end of each week, file the completed form and begin a new form
At the end of 8 weeks, categorize your expenditures. Categories can include: rent/mortgage, home owner’ s insurance, telephone, cell phone, internet, gas, electric, cable, garbage, cleaning, yard or pool care, maintenance & repairs, groceries, dining out expenses, clothing & accessories, dry cleaning, hair cuts, massages, donations, health club memberships, medications, medical expenses, gasoline, automobile payment, automobile insurance, automobile maintenance & repair, parking tolls, parking tickets, magazine & subscription expenses, sporting events, movie tickets or rentals, child care, diapers, formula, allowance, school expenses, pet grooming, tuition or student loan payments, school books and supplies, band and credit card fees, gift expenses. In a separate column, include expenses that you don’t pay monthly, such as property taxes, tax preparation fees, etc. Be sure to include year round expenses-lunches for your children during the school year, Christmas and holiday expenses, etc.
Tips for cutting expenses: clip coupons, buy on sale, purchase generic brands, buy in bulk, shop at discount outlets, improve your gas mileage by have your car tuned up, carpool, take the bus or train, combine trips, discontinue cable, subscriptions and magazines, borrow books and CDs instead of buying them, discontinue your telephone service and only use your cellular phone, don’t dine out, spend less on gifts.
Make a list of all of the jobs for which you receive income-record your gross and net income
List any other sources of income-bonus pay, alimony, child support, pensions.
CREATE YOUR BUDGET
Take the average of your 2 months of income and expenditures and develop your budget.
Plan a budget that you can live within. For example, don’t cut out all of your entertainment expenses because that’s not a realistic goal.
Any excess money after your obligations are met must be used to retire debt.
2. Once you have a sound budget in place, get a copy of your credit report. You can visit www.annualcreditreport.com to get a copy of your credit report.
Thoroughly and carefully review your credit report and note anything that is outdated-liens that have been paid, bankruptcies older than 7 years, any request older than 2 years made by a company inquiring about your credit.
Look for incorrect or incomplete names, addresses, telephone number, accounts that aren’t yours, incorrect late payment notations, closed accounts that are listed as open, accounts that are listed more than once, and any account that you closed that doesn’t note “account closed by consumer”
After noting the inaccuracies, visit the credit bureau’s website and obtain a “request for reinvestigation” form. Request that the bureau review all of the errors and make the proper corrections to your credit report. The bureau is required to complete the investigation within 30 days.
3. Manage Your Existing Debt
Deal with current debts and debts that are not seriously overdue. It is possible to negotiate with creditors for extra time to pay or a change in the terms of your repayment. A creditor would much rather hear from you before your payment is late. Follow this method when communicating with a creditor (1) clearly explain your problem-an unexpected accident, medical emergency, loss of job; (2) let the creditor know when you expect the situation to improve-you expect a settlement in 30 days, you have 3 job interviews that look promising; (3) send a small payment-even if its not the minimum payment, most creditors are more likely to cooperate if you make a good faith payment.
Mortgage Payments-if you anticipate a problem keeping your mortgage current, contact the lender to see if they can defer the payment or accept an interest only payment. Also, inquire about any refinancing options that might be available for debt reduction. If there are no other options, consider selling or walking away from the home.
4. Slowly Begin to Rebuild Your Credit
Get a credit card and use it wisely-get a single credit card and use it to pay your monthly expenses-then pay off that credit card in its entirety every month. After a few months, this will alert other potential creditors that your credit is getting back on track and your credit score will begin to rise.
Don’t go overboard once you establish your credit history. You should carry one bank or debit card, one department store card and one gasoline card. If you have too many open credit card accounts, even if they have a zero balance, it can hurt you.
Close credit card accounts that you don’t need. You can do this by simply writing a letter to the credit card company and asking them to kindly close the account.
Open a savings account-potential creditors look for assets which may be used for repayment.
Shop around and get the best accounts available-many credit cards have outstanding interest rates. Do your research and don’t just grab the first credit card you can get
Avoid debt counseling. Any debt counseling that you seek will be reported on your credit report.
The information contained in this article is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. This information is not intended to serve as a substitute for consultation with an attorney. Specific legal issues, concerns and conditions always require the advice of appropriate legal counsel.