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Credit Repair - Rebuilding Your Credit
Credit Repair - Rebuilding Your Credit
Credit repair, in the past year has become a new buzz word. Since the end of 2008 we saw high unemployment, the housing market crash, and a financial industry on the brink of collapse. With so many people losing their jobs and the decrease in home values, home foreclosures have risen to record levels. Surprisingly enough we began to see more people skipping their mortgage payment in lieu of their credit card payments, because many people were upside down on their mortgages making refinancing no longer an option. Due to the things listed above, the final nail in the coffin to people’s credit scores was a rise in bankruptcies. Bankruptcies can stay on your credit report for up to 10 years severely damaging your credit.
Another Problem With A Bad Credit Report
Ok, after all is said and done your credit score dropped considerably, you couldn’t finance a stick of gum if you wanted too. If that were not bad enough, there are more negative effects of a derogatory credit history. Today many employers use your credit history as a employment screen test, therefore preventing you from getting a job. Although employers cannot legally disqualify you for a position because of your credit score, it does happen, they just come up with a different reason. A few states have already taken away the ability for employers to pull a potential employees credit report, more states are following suit. My home state of Wisconsin currently has legislation going through the State Senate and Assembly which will prohibit this practice in Wisconsin. For more on the use of your credit history in the hiring process see my hub, Credit Discrimination in the Workplace.
Some Books to Check Out
If you have gone through that personal hell and your credit is ruined, relax, the worst is over. Your credit can be restored, it won’t be easy and it won’t be overnight, but it can be repaired. There are many companies that offer to help you restore your credit, for a fee of course. They tell you that they have the experience to fix your credit in a short period of time. Let me tell you this, think it through very carefully before you spend your money to someone else fix your credit. WHY? Because you can do it yourself, the same way they would except you don’t have to pay them. If you really want to pay for it, go ahead and cut yourself a check. The difference between them and you is, YOU have to do it. For the convenience of you not having to do the leg work, they will charge a fee. Now your asking “How do you I fix my credit?” Keep Reading.
Getting A Copy Of Your Credit Report
First you need your credit report. Fortunately, you are entitled to a copy of your credit report for free once every year. If you have not already gotten your report, this is a great time to do it now. You are also entitled to a free credit report if you have recently been turned down for credit. The three major credit bureaus you will be working with are Trans Union, Experian, and Equifax. Each of the Bureaus have their own online sources, and they each offer a free report, although there may be a charge if you want the score with the report. I personally use Transunion’s True Credit, it was the first one I ever used, therefore I am more familiar with it, and they do have a free trial period.
All of them will offer a subscription service and through the process of repairing your credit, I would advise you to get the subscription. Usually with the subscription you can get all 3 bureau reports for free anytime during the subscription term, and you do want all three reports. Everything you do with one bureau you will have to do with the other two bureaus, in this instance they may not update each other. You will also get notifications when things on your credit report change, like when you get things fixed, it allows you to monitor your progress. With this you will be able to dispute items on your report. All of this can be done by phone, but I have found that doing it online is easier and faster, to be honest getting a live person on the phone at the bureaus is can be difficult.
Reviewing Your Credit Report
Now that you have your credit report, go through it very carefully. Look for anything that is over 7 years old, you will dispute these as being too old. All states have a statute of limitations on collectable debt. To find your states statute of limitations you can go to the Fair Debt Collection website. Also check for anything that is incorrect, most credit reports have errors, you will also file a dispute to have them removed. Do the same with any closed credit cards that still show up on your report, especially if they show anything derogatory. Removing old and incorrect information has an immeditate positive effect on your credit report, just remember it can take up to 90 days for those repairs to actually show up on your report. For the derogatory items on your report that are legitimate, note when the last time they had reported to the bureau, remember the Statute of Limitations, this is the part that can’t be fixed right away.
If there are any legal monetary judgments, make sure they are yours and correct, if they are they will eventually need to be taken care of. Most states allow the creditor to charge interest on the judgment, so don’t be surprised if the actual total is more than what the report says. At some point you will need to contact the creditor and try to negotiate a settlement or pay plan, bear in mind, most will want a lump sum, as a show of goodwill, before they will work with you on a plan. In some states a monetary judgment also puts a lien on your property, such as your house, which would need to be paid prior to selling your house or with the proceeds.
Dispute The Bad Stuff
All of the bureau sites will have a page that will allow you to dispute the information your credit report. From there the bureau will investigate and if they find that the information should be changed or removed they will do it and let you know. This process can take up to 45 days before you get an answer, although they do try to get it done faster. For the legitimate derogatory information, keep track of the statute of limitations and when it reaches that time, have those removed from your report as well. The important thing is the statute of limitations timing begins at the last time the original creditor stops reporting. Once that time is reached any uncollected debt is no longer collectible, you can now tell the debt collectors to take a hike and have it removed from your report.
Time to Rebuild
Now that you have gone through your report and disputed any information you could, it’s time to rebuild your credit. It is true if you file bankruptcy and have derogatory information on your credit report it becomes difficult to gain new credit, but not impossible. If you google “bad credit credit cards” or “bad credit loans” you will find some one out there. You will end up paying higher interest rates, but consider this as a short term situation, as your credit score increases you will get rid of the high interest cards or loans. My suggestion though is start with a secured Credit Card
Secure Credit Cards
A secure credit card is one where you send them some money, like $500 and they will give you a credit card with a $500 limit. When you use the card, it comes out of your “deposit” and you make monthly payments to repay the card. Yes, they do charge interest, but as you pay, they report this to the bureaus “paid as agreed”, creating a favorable report. In 3 – 6 months apply for a credit card from a smaller bank or credit union or a high risk card with an annual fee, your goal is to get a card with a small limit, even if it is only $100. Use the card and make the payments on time. As you make on time payments, your limit will increase, and you will be able to apply for other cards. Don’t apply for more than 2 – 3 cards per month, in fact I would only apply for 2 - 3 cards one month and then wait 6 months. Eventually you will gain more cards with higher limits.
Finally It's Done
OK you now have credit cards and your credit is finally restored, don’t let this go to your head. You still have to be responsible with your new credit. Remember it was easy getting into financial difficulty, but it takes time to rebuild your credit, you don’t want to go through this process again. Check your credit at least once per year and check for errors. Congratulations you have survived a difficult time, rebuilt your credit, and came out looking pretty good.
I hope this information helps. If anyone has any other suggestions, examples or just their story, please leave a comment. You never know who you can help and ultimately that is why we are here, to help others. Good luck.