Wednesday, March 22, 2006

How to Repair Your Credit

If you're struggling with debt, here are few steps you can take to repair or rebuild your credit on your own before accepting one of the many "debt consolidation" offers or resorting to bankruptcy.

1. Create a budget. Calculate your income and your expenditures. Figure in your bills such as car and house payments, utilities, and other bills that you can't be late on. Find out how much money is going to waste for leisure activities and going out to eat. Then figure out how much money you can set aside each month to whittle down your debt. There is a lot of free budgeting software out there, just look.
2. Be aware of what's in your credit report. Surf the webs for the latest free offers, but read the fine print. Some "free" offers automatically enroll you in a monthly or annual program that costs money. Or, visit this site to get a free copy of your credit report from Equifax, Experian, and/or Trans Union.
3. Contact your creditors. Not after months of harassing calls, but as soon as you realize you won't be able to make the requested payments. Most creditors are not as cut-throat as you think, and they will work with you to schedule smaller payments that fit your budget. Look at it from their point of view. They'd much rather receive $20 payments for the next year than get nothing if you have to file for bankruptcy. Let them know you're trying to repair your credit, and offer to pay them a percentage of your balance. Most agencies will accept 30 - 40% of your debt.
4. Get any agreement in writing. Once you pay off your debt, make sure you get a settlement letter and send it to the credit bureaus so they can amend your credit report.
5. Cut up the cards. Keep a few of the accounts open. Having 5 accounts with zero balance on four and $500 on one lowers your credit risk, as opposed to 2 accounts with a $250 balance each.
6. Get a secured credit card. You're unlikely to be turned down for one because you supply the money up front as collateral. For instance, you pay $300 for a secured card, you'll have $300 credit limit. Beware of the high interest rate and various fees often associated with a secured card.
7. Join a credit union. They're more likely to give you loans in the future than a regular bank.
8. Make all payments on time. Don't arrange a lowered settlement amount if you can't pay it. Don't get a secured credit card if you won't be able to make those payments on time. It will only reflect badly on your credit.
9. Recognize that bankruptcy shows up on your credit for 10 years. Don't take the easy way out now, you'll pay for it later. It takes a lot more hard work and dedication to rebuild your credit than it does to declare bankruptcy, but you'll be glad you did.

* You can get negative items removed from your credit report. Write to the credit bureaus and tell them that the items you want removed are inaccurate or incomplete. Don't get too specific, or you could end up worse off than when you started.
* You want to show that you are responsible with high balances, so you'll want to have high credit limits but a low balance. It actually helps to have a high balance that you've paid off.
* Get a loan from your Credit Union or Banking establishment, immediately (that day) turn around and open up a savings account. Then make payments on the loan from the savings account. DO NOT use the money for anything else! This will help your credit quite a bit once as you pay off the loan.

* Don't cancel all your credit cards! Pay them off, don't use them (or don't use more than you can pay off each month), but keep the accounts open. You want to have a long credit history with at least three "trade lines."

1 comment:

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