Credit Rebuilding
     
 
Are you interested in buying a house, but the mere thought of the way your credit report looks makes you cringe? Most people are concerned about cleaning up their credit report before they even think about making any financial plans, however, this is like the old expression - "putting the cart before the horse."
  
 

Certainly repairing your credit history is important; however, most important to your overall credit and financial situation, is to concentrate your energy and attention on establishing a concrete financial plan. In doing so, you will actually rebuild your credit in the process. You may, however, feel overwhelmed with this idea of a "financial plan" and wonder "Where do I start?" or think "I’ve never gotten my finances straight so far, why would I be able to get it right this time?"
  
 

The first thing to remember in rebuilding one’s credit and creating a financial plan, is that you need to recognize that it is indeed a process, and that it will not happen overnight and that there will not be any miraculous recovery to your credit in which your credit will suddenly be sparkly clean for any lender to review. It probably will take 2 to 5 years to really clean it up and rebuild - follow the timeline below for an overview of a sound financial plan.
  

But just where does one place his priorities? Where to begin a credit rebuilding timeline? The place to start in beginning a financial plan is by establishing a spending plan, a.k.a. - a budget. Budgeting does not have to be a nerve wracking experience, in fact, once the budget is in place, most people find it a helpful guide that keeps them on track with their goals and helps to curb their old spending habits. (Remember that to maintain and stick to a budget, one must track one’s expenses by occasionally taking a week to track all one’s expenses. This can be done, for instance, in a carry-along notebook or by compiling and adding up all one’s receipts for the week.) You would be surprised at how many people are astonished at where their money goes because they had never tracked their expenses and were previously unaware of their true spending habits.
  
 

Once you have managed to establish a budget for yourself, the next step is to send for your credit reports from the three major credit bureaus (Equifax, TRW, and Trans Union.) After reviewing your reports, you should send correction requests to each bureau regarding any information that is incorrect or untraceable so that they can correct or remove it from your credit history. Please take note that the consumer can correct her own credit report and there is no need to invest money in a credit repair clinic. Most of these repair clinics are only interested in collecting fees from the consumer and it is questionable if you will receive any real service (i.e.- a permanently corrected credit report.) My suggestion is to save yourself $500 to $1000 and write some letters to correct your own credit history.
  
 

The next important consideration is to make an effort to avoid doing any further damage to your credit. This may seem obvious, however, sometimes it is easy to loose sight of the obvious. If you are currently having difficulty paying your creditors, you should contact them and try to negotiate lower payments, as well as interest rates. If this isn’t possible, and your credit is fairly stable, you could consider refinancing higher interest rate credit cards with lower interest rate credit cards. A word of caution, however, if a person often refinances credit with new credit lines, this can eventually be perceived by lenders reviewing your credit report as negative information because they will question your motivation and desire to truly pay off your debt; this is especially true if your overall debt increases.
  
 

Also, stop using any and all credit cards for which you are unable to make more than the minimum payments. This is an "obvious" sign of debt overload. You need to pay off these accounts now. If you are unsuccessful at adjusting your debts on your own, Consumer Credit Counseling Services, (732)531-7272, may be able to intercede with your creditors on your behalf and negotiate a repayment schedule that is affordable to you.
  
 


After you have pursued the above mentioned steps, if you have credit accounts that are in default (one to several months late) or accounts that are currently "in collection" with a collection agency or an attorney, you must begin paying off these accounts. You may even be able to negotiate a "settlement" in which you would only be required to pay off a portion or percentage of the debt if you are able to make a lump sum payment.

Contact the collection agency or attorney and tell them the amount that you are able to repay on the debt that is within your budget. Be specific and state your commitment to repaying the debt based on what you can currently afford and if necessary state that you can increase the payment when your circumstances improve. (If these repayment agreements are not realistic and based on your actual budget, you will find yourself in default again. Make sure your repayment schedules are realistic. Don’t promise payments that you cannot afford.)

At this point in the "rebuilding timeline", you should concentrate on making all payments on time and develop a strategy for paying down your overall debt load. Some ideas for success in the debt pay down process that you might consider are:

1. concentrating on those debts for which you are "Over the Limit" and are receiving Over the Limit fees, pay these down to within the extended credit line to avoid the extra fees;

2. attempting to pay off in full a small debt and gain momentum for the rest of your debt load from this success; or,

3. trying to cut down on nonessential personal expenses, such as, that coffee or danish that you pick up on the way to work, and use the money that you save as a "power payment" that is concentrated on one debt. (This may not seem like a lot of money, but consider that at $2 a day, the coffee & danish money could add $42 to whatever payment you are currently making on that debt.)

Now that you have cleaned up your credit report both through repair efforts and changing your payment history (paying off old and current debts), it is time to start bolstering your credit history with another type of positive information about you. Approach people you know and have financial dealings with, obtain written recommendations regarding your good payment history, such as from landlords and utility companies (i.e., oil companies), that you can send to lenders along with loan applications, i.e., car loans, mortgages.

These recommendations represent positive additional information to supplement all the credit rebuilding you have been working on up until this point. Additionally, you should begin to consistently build a savings account for emergencies, or for goals you are pursuing.

Now that your credit is in fairly good shape, you may want to consider taking out a small loan that you KNOW you can repay and repay it quickly which will also serve to show good repayment history and contradict your "old" credit history.

Lastly, you may also want to consider applying for a "secured" credit card. With a secured card, the consumer is required to put down a deposit, usually between $200 to $500, to secure the consumer’s commitment to repayment of the account. The card is accepted and used just like any other credit card, except that if you default on your payments, you will loose your deposit. The consumer generally receives interest on the secured deposit, so if the account is closed and there is no balance owing on the account the consumer will receive the balance and any interest accrued to the account.

With your credit rebuilt and your financial situation structured for success (with a financial plan in place) you are now ready to actuate some of those goals you have been working towards, like homeownership or furthering your education or your children’s education.

  
     
     
 
   
 
Copyright ©2006 United Fidelity Mortgage Company
All Rights Reserved Worldwide
Main Branch: 3212 West End Ave, Suite 302 ~ Nashville, TN 37203
toll free: 866.383.5603 ~ tel: 615.383-5626 ~ fax: 615.383.5623
No part of this website may be reproduced by any means without written consent of United Fidelity Mortgage Company except where clearly indicated