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 > How to Rebuild Your Credit |
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Is
your credit score low Are you drowning in debt Follow these steps to get on
the path to rebuilding your credit.
Instructions
Step 1
Bring all new past due balances current. Pay any new past due balances that
have not yet negatively impacted your credit or been referred for
collection. This will help stop any new judgments or wage garnishments.
Sometimes just making a payment on a debt can keep it from being referred to
a collection agency. The 1st step to rebuilding your credit is to head off
those things that can drop your credit score even lower. Get every past due
account below the maximum limit.
Step 2
Examine your credit report. Most unsecured debts that are at least 7 years
old should be dropped from your credit report under the Fair Credit
Reporting Act. Each state has a Statute Of Limitations(SOL) that states the
maximum amount of time that a lender can seek to recover funds. Creditors
can no longer sue you for collection of a debt once the SOL has expired.
Collection agencies will continually try to collect old debts that you don't
have to pay. Remember that companies will not request that negative
information be dropped from your credit report so you have to. Alert your
credit reporting agency that this old derogatory debt should be removed.
Have any inaccurate information removed as well.
Step 3
Negotiate with the creditors you owe. This can be by phone, mail or email. I
have always found letters the best way to communicate with lenders because
there is a documented record on file. It also saves you from threats and
harassing communication from creditors. Send your creditors a debt
settlement letter letting them know what you are able to pay. Many creditors
will take pennies on the dollar to settle an old debt. Companies write off
delinquent accounts as a bad debt expense each year so any money that they
receive is unexpected revenue. You may be able to settle a $5,000 credit
card bill for $1,000.
Step 4
Build new credit. Once your past due debt has been paid up to debt, now its
time to start building good credit. If you don't have any open credit
accounts then I recommend a secured credit card. Secured credit cards are
cards backed by a deposit bank account. In order to get $500 worth of
credit, you will have to deposit $500. Secured credit cards are good for
people with no credit or bad credit. Buy one or two things and pay the
balance off quickly. Keep the card for a year and you should receive offers
for an unsecured credit card with a higher limit. Remember to pick a secured
card with low fees and a decent interest rate.
Step 5
Pay your new debts on time. Pay all your bills within 30 days. If you want
to have R1 credit it will take time. R1 credit is the highest credit rating
and it means that you pay your accounts as agreed. You want to pay each debt
as agreed with no late fee if possible. One trick I learned is that any debt
that you pay within 30 days is reported as R1 even though the company may
charge you a late fee. I do not recommend paying late fees but for those who
juggle one bill to another it is worth knowing. After paying your debts as
agreed for some time you should be able to get an automobile loan from your
credit union with a fair interest rate.
Step 6
Maintain your good credit. Keep your credit inquiries to less than two a
year. At the most keep one unsecured credit card with little to no balance
for emergencies. Keep your available credit higher than 70% on all of your
accounts. By now your credit score should be good enough that you can
purchase a home with a low interest rate.
This whole process may take time but after a few years your credit score
should be in the 700 range.
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