So, your
credit's not great. It may even be bad. And now you want
to know how to clean it up. Well, there are no quick-fix
solutions when it comes to your credit history. You
can't sweep late payments away or toss out charge-offs.
But with patience and discipline, you can rebuild your
credit sooner than you may think.
Companies may tell you they can make old debts disappear
or help you start an entirely new credit history. But,
their plans are illegal and could cause you to commit
fraud. These "credit repair services" say a bankruptcy
or bad credit history will make it impossible for you to
get any credit for years to come. Certainly, a poor
credit history will impact your ability to obtain new
credit, but there are many options available for people
who are ready to begin rebuilding their own credit file.
Remember, there's nothing anyone out there can legally
do to improve your credit rating that you can't easily
do yourself for free.
The
first step is to get a copy of your credit report. One
easy and inexpensive way to do this is by ordering a
copy of your credit report online. Check it carefully
and dispute any information that is inaccurate.
If you
are overwhelmed by your
debt and anticipate not being
able to pay the minimum balances, you may consider
credit counseling or a
debt repayment plan. A credit
counselor helps you devise a schedule to pay your
debts,
but there is no signed commitment. Seeking counseling
doesn't show up on your credit report, but you are
responsible to stick to the plan.
However,
a debt repayment plan can affect your credit status.
Creditors may report that an account is in a debt
repayment plan, that some payments (if any) have been
missed, or that concessions have been made to help
reduce your debt to a workable amount. Under the Fair
Credit Reporting Act, this accurate information about
your accounts can stay on your credit report for up to
seven years. In addition, your creditors will continue
to report information about accounts that are handled
through a debt repayment plan. However, if you can avoid
filing bankruptcy, a debt repayment plan may be worth
the trouble.
Remember, write-offs and late payment notations may stay
on your credit report for seven years; a bankruptcy can
stay on for up to ten and is a matter of public record.
If you prefer to manage your credit on your own, you can
plan a credit strategy much like you would a budget.
Apply for a major credit card if you only have local
credit, close old unused credit accounts and keep tabs
on the number of inquiries in your report. If you're
having trouble getting a major credit card and have no
other credit, start small: apply for credit with a local
business, such as a department store or a local bank or
credit union. These local merchants may have lower
credit standards than larger lenders and can help you to
establish a track record of paying bills on time. Before
you apply for credit, make sure the credit grantor
reports to one of the major U.S. credit bureaus so you
can build your history.
You
could also ask a friend or family member to cosign your
loan or credit card application or obtain a secured
card, which is guaranteed by a deposit you make with the
card issuer.
Finally,
make sure you make all your payments on time. Lenders
give more weight to recent payments, so start showing
you are a solid credit risk now.
Repairing your credit history is not a quick, easy
process. But with some patience and hard work, you can
rebuild you credit in a relatively short time and be on
your way to a positive credit future.
Mortgage Glossary2
