Repairing Your Credit
1. Create a budget. Calculate your
total income
and your total expenditures. The best way to figure your expenses
is to track your spending habits for t least 30 days. Find out how much
money is going to leisure activities such as going out to eat
or the movies.
Then figure out how much money you can set aside each month
to bring down your debt.
2. Be aware of
what is in your credit report. By federal law,
you can get one copy of your credit report from each credit
agency, (Equifax, Experian, and Trans Union), each year. You
can get all three at once, or spread them out through the
year. Thoroughly review your credit reports for accuracy.
It's tough enough paying for your own mistakes -- you don't
need to be penalized for someone else's. Look for: late or missed payments, (especially recent
ones), and maxed-out credit lines.
3. Contact your creditors. Preferably 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. After all,
they'd much rather receive $20 payments for the next year
than risk getting nothing in bankruptcy court. Tell them you've worked out a budget
and can afford to pay them
X amount of dollars, and offer to send them a copy of your
budget. They are
much more likely to accept your offer of lower payments if
you can show good faith.
4. Get all agreement in writing. If you are able to negotiate
lower payments, interest rates, or balance payoffs, request
that they send a letter confirming it. Having it in writing is
your defense against changing minds, lost records, new
management being more aggressive, or any number of other
things. Once you pay off your debt, make sure you get a
settlement letter and send a copy of it to the credit
bureaus so they can update your credit report.
5. Cut up your cards
or else, stop
charging. Keep paying at least the minimum on
everything. Eventually, you will get them all paid off. Keep
one card available for those times when you have
to have a credit card.
6. Consider transferring your largest credit card balance
to a low or zero interest loan until your debts have been paid off.
7. Pay off your debts. Once you
have decided how much you can pay
against your debts, and negotiated lowered payments, you
must allocate that portion of your budget to each creditor.
Pay the minimum (or agreed amount) to each and every
creditor, every month, on time. Then pay any extra against
the lowest outstanding balance. Total debt outstanding
constitutes nearly one third of your credit score.
8. Get a secured credit card, if you do
not have a traditional
one, and need to build up your history. You're unlikely to
be turned down because you supply the money up front
as a collateral. If you deposit $500 with the bank, you'll
have $500 credit limit on your secured card. Beware of the
high interest rate and various fees often associated with a
secured card. Pay in full, on time, every month to avoid
most of those fees.
9. Join a credit union. They're more likely to give you loans
in the future than a regular bank.
10. Make all payments on time. Don't arrange a lowered
settlement amount you can't pay. It will only reflect badly
on your credit. Payment history is the number one factor in
your credit score -- over one third of your score.
1. Avoid bankruptcy if at all possible; it 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 will thank us for it.
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