Credit Rehab

Repair Your Credit Following These 5 Steps

Repairing your credit can take as little as a month or several years depending on how deep you're sitting in the credit pool. You'll need to prepare yourself for the daunting task because it's not going to be easy; patience is something you're defiantly going to need alongside dedication and commitment. If you've read any of my previous posts then this should just be a recap, but if this is your first time then follow along and we'll get you caught up to speed and have you on your way to better credit and erasing all of those negative marks.

Step One - Leave Blame and Pity Home

There is no time to play the blame game or cry over spilled milk, what's done is done. I have already warned you; you'll need to prepare yourself for the worst and hope for the best! Blaming yourself for what is yet to come won't solve any of the problems you'll face, our ultimate goal is to fix your credit not to cry over it.

Step Two - Obtain Your Annual Credit Report (Free)

Understanding the factors of credit reporting can be exhausting and often times confusing. Payment history, Public records, Credit history (length), Accounts, Inquiries and utilization are among the top factors and hold the most weight in determining your score. Pull your credit report so you can see exactly where you stand as well as the areas your credit needs improvement. Do you have many missed payments? Too much credit card debt? Judgments? Inquiries? Are there any errors reporting on your credit? Answering these questions will help determine where to start. High credit utilization, errors, late payments, excessive inquiries, etc. are the main factors bringing your credit score down; If you notice errors or fraudulent accounts on your report it is important that you bring these errors up to the credit bureau so they can be removed.

Step Three - Pay Down The Debts You Owe

Because payment history has a huge impact on your credit score it is important to remain on top of your payment obligations. Make payment arrangements and bring the accounts that are behind up to date and avoid falling behind in the future. Establishing a reliable payment history will increase your score and show creditors that you are able to satisfy your obligations and will open other doors for situations in which you might need to apply for credit.

Charge offs? Collections? - Time To Negotiate

Understanding credit is most often like visiting a foreign country and not speaking their language, it is extremely political and difficult to understand as there are many factors which impact your score. Allowing accounts to go unpaid can really hurt your score, then again so can settling for less than you owe. This doesn't mean that you don't put forth the effort. In order for your score to increase you have to remove the negative debts from your report. Accounts that have been charged off or in collections are a prime opportunity to not only save you money but to get rid of the debt all together. Negotiating a settlement isn't always easy and not all creditors are willing to work with you on this one but it is worth a try. Before initiating the call, find out what you can afford. Even if you are able to pay the debt in full I would still recommend negotiating a settlement as this will save you money that could go towards other repair steps. Keep track of all the details including names of those you spoke to as well as dates, times and any details of the conversation. Here is what you need to know when negotiating with your creditors:

• Explain your position, limit the details and be consistent. Your creditors need to understand the events in which lead to you neglecting the account but they don't need every detail. Common situations are loss of income, medical and health complications, divorce and or other financial hardship.

• Avoid negativity as it will backfire. Sometimes you will find yourself conversation with someone who just doesn't show sympathy for your situation or is unreasonable. Stay positive and remain professional as losing your temper will get you nowhere and possibly ruin the chance at resolving the debt. If getting through to the other party is proving to be difficult and tense then offer to call back later, ask for another representative or ask for the conversation to be recorded. If you find yourself in a tough situation or the creditor uses threats to intimidate you then you'll need to contact an attorney or educate yourself on the Fair Debt Collection Practices Act.

• Don't discard items you receive via mail as creditors tend to reach out on accounts during tax season in attempt to resolve the accounts. It is very common that they will reach out to you to settle the debt without the negotiation hassles.

• Request it in writing. If a settlement is reached, request the settlement in writing before you pay the creditor. Terms and agreements are always subject to change and without anything in writing it is their word against yours which doesn't hold in court without documentation. Although not very common there have been cases in which creditors failed to resolve the debt in which the account was still reporting as unpaid.

• Ask for removal. When negotiating a settlement ask the creditor to agree to request the account and/or late payments be removed from your report. Typically upon request the creditors will remove the account within 30 days.

If you find yourself in a position where you aren't able to settle the debt with the creditor or you aren't able to afford the debt consider consulting with a bankruptcy attorney or a credit counselling/consolidation firm.

Step Four - Keep Credit Utilization Low

Available credit and credit Utilization happens to be the second most influential factor in your credit score and ideally should be kept below 15-25%. The more credit you have available to you the higher your score will be and the more likely you'll receive approval on applications for credit. Now that you have paid down your debt it's time to remember to maintain positive financial habits so that you are protected from poor credit in the future. Here are a few tips on obtaining and keeping credit:

• Avoid closing credit accounts! Account history accounts for 15-30% of your score. The longer an account has been established the better it looks for you, keeping credit history on your side.

• An unsecured credit card carries more weight and looks better on your report. If you can't qualify for credit then consider establishing a secure card instead. A secure credit card is easier to obtain as it requires collateral and often linked to a savings account. Once you have established history and satisfied payments on time you can ask for your card to be upgraded to an unsecured card. Typically if you have made your payments on time and stayed within your limit it is likely most companies will allow the upgrade. Credit companies have the right to close or alter your limits therefore it is important to keep a good relationship with the company as well as maintain positive history on the account.

• With credit comes responsibility. Don't apply for credit if you aren't able to control your spending habits. Sometimes when rebuilding your credit you will find that you might have to apply for another card to boost your utilization; if you use it as a reason to spend more than you aren't doing anything to repair your credit.

• Obtain an installment loan. The two main types of credit accounts are installment and rotating aka revolving. Your rotating accounts consist of credit cards and lines of credit which we just took care of in the last key point so it is time to focus on your installment loan. Installment loans are accounts with set terms like auto or mortgage loans. This will help in your payment history as well as showing diversity in they types of credit in which you have. Borrow responsibly as this can affect future interest rates and your credit utilization.

Step Five - Maintain Positive Financial Habits

You didn't come this far just to turn around. Keep showing positive habits and your score will improve with time creating better opportunities as well as saving you money on interest for future loans. Remember to live within your means and only borrow what you are able to pay back. It is wise to create a savings so that you don't have to rely on credit to cover unexpected expenses. I have several other posts that will help you establish a savings as well as increase those positive habits you're improving on, you can view them here.

Looking for help with credit repair? Here are some companies I have used in the past as well as apps to help track your credit report and score.

Lexington Law Firm - Credit Repair - Debt Payoff Planner (App)

Mint: Budget, Bills, Finance (App) - Credit Sesame (App) - Credit Karma (App)

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