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Credit Repair Education

1 - Introduction to Credit2 - Repairing Your Credit3 - Protecting Your Credit4 - Consumer Credit Laws5 - Resources

         

 

 

Building / Improving Your Credit

It is important to take steps to clean up your credit if you have had credit problems in the past.  You’ll need to set up a plan for spending and saving, get copies of your credit reports, and know your FICO score.
 
Plan Your Spending
 
When putting together your spending plan, first tally up all of your household income – that is, every bit of money coming into the home.  Now, you need to take into account your living expenses.  Include everything from groceries to mortgage, and don’t forget to include nonessentials that you purchase - like your daily coffee fix, or shopping trips.  

Also include money you put aside for your savings.  Savings should be established for whatever your financial goals are – like sending children to college, or even your dream house or car.  Be sure to also include an emergency fund for unexpected expenses, which are bound to pop up.  A proper emergency fund should include three to six months of living expenses.  This will help you to avoid financial potholes.  (Read Budgeting and Setting Goals)
 
Obtain Your Credit Report 
 
When obtaining your credit report, make sure you get a copy from each of the major credit bureaus, as they may contain differing information.  Remember, you are entitled to a free copy of your credit report each year from each credit bureau. (To order your free credit report visit www.annualcreditreport.com or call 1-877-FACT-ACT.) When you do receive your reports, take time to go over them, checking to make sure all the information is accurate, and make sure that it is free of expired items.  Most items expire after 7 years with a few exceptions.  The following items have different time frames:
  • Student loans remain on your report until they are paid.
  • Overdue tax debts remain until they are paid.
  • Child support defaults remain until they are brought up to date.
  • Bankruptcy remains for 10 years.
  • Positive information can remain from 10 to up to 30 years.
Credit scores are broken down into 5 groups, with 20 percent of the population falling evenly into each of the 5 groups.  The group breakdown is as follows, with 690-700 being average:
  • 780 or above
  • 745-780
  • 690-744
  • 620-689
  • 620 or below
 
Paying Off Your Debt
 
When making the decision of which bill to pay first, do what works for you.  Some say to pay off loans with higher interest rates first, to save the most money.  Others advocate paying off smaller bills first, as doing this will give you a sense of accomplishment, and motivate you to stick to your plan.  Either way is fine, just make your decision and stick with it.  Keep in mind that ideally, your open accounts should be paid down to 50% or less than the credit limit.  This helps you maximize your credit score.  If you make all your payments on time for a year, you will most likely be able to obtain an unsecured credit card.

Purchase to Your Advantage
 
Use your purchases to your advantage.  When you purchase big ticket items, such as a home, automobile, or furniture, they sometimes help your credit score.  This is because in these cases, lenders usually extend credit in secured installment loans.  This means that if you don’t pay for the item, they take the item back.  Your credit score improves when you have secured credit.  When you are paying for a big-ticket item, you must adhere to a set payment each month, as opposed to varying payment amounts as with credit cards.  Set payment amounts that are being paid look good to creditors.
 
Consider a Cosigner
 
Another way to help your credit is to involve other people.  In some cases, a lender will not extend credit to you alone, but they will if you have a cosigner – that is, someone who guarantees a loan if you don’t pay.  The advantage to you is that you receive credit.  If you pay on time, this is a great way to get positive information on your credit report.  Using a cosigner should be carefully considered, as the person who cosigns for you is fully responsible for your debt if you default.  Not only that, but your default negatively affects your cosigner’s credit.  Because of this, using a cosigner is risky, as it can threaten relationships.

Being Married Helps
 
If you’re married, you can benefit from your spouse’s good credit.  If you are an authorized user on your spouse’s credit card and your spouse pays the bills on time, the positive information gets reported on both of your credit reports.
 
Avoiding Bad Credit
 
Once you have improved your credit how to you avoid bad credit again and make the most of the credit you have?  Here are some bits of knowledge you can take advantage of. 
  • 1. Pay down your debt.  The lower your credit availability to credit used ratio, the better.
  • 2. Use secured credit cards.  These cards require you to make deposits before you use the card, in order to guarantee payment to the lender.  They are easier to obtain, for those with new or poor credit.  This is a great way to add positive information to your credit report.
  • 3. If possible, take out a passbook loan.  This type of loan uses your savings as collateral.  Paying on time adds positive information to your credit report.
  • 4. Use retail store cards.  They have lower credit limits and are easier to obtain than major credit cards.   Pay off the balances each month.
  • 5. Do not close old accounts just because you are no longer using it – this actually lowers your credit score.
  • 6. You have the right to place a 100 word statement on your credit file.  Exercise that right.
  • 7. Check your credit report periodically.
  • 8. Do your best to prevent identity theft.
  • 9. Keep good records – this will enable you to pay your bills on time.
  • 10. Do not hesitate to get professional help if needed.

 

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