Managing credit is a tricky thing. You need to have some credit in order to finance large purchases such as buying a home, purchasing an automobile, performing home repairs, or buying a boat. If you do not have any credit, you will find it difficult to perform simple tasks such as traveling since a credit card is often needed to rent a car and book a hotel room. But having too much credit can lead you into an endless cycle of debt where you find yourself struggling to pay the bare monthly minimum on your credit accounts. Managing credit is a delicate balancing act that must be handled to keep you from being swallowed up by your bills. If you are already drowning in a mountain of debt, use these simple steps as a life preserver to help you rise above the tide of bills. Follow these steps to rebuild your credit:
STEPS TO REBUILD YOUR CREDIT
1. Bring all new past due balances current.
The first step to rebuilding your credit is to catch up to date any current past due balances that have not yet been referred to collections before they permanently ding your credit score. This will help impede any new judgments or wage garnishments from being imposed. Just sending a few dollars on a past due debt can prevent it from being sent to collections. Get every past due account whose payments are late 90 days or less up to date. After 90 days, the account will be written off and referred out to collections.
2. Examine your credit report for errors.
Most unsecured debts that are at least 7 years old should be dropped from your credit report under the Fair Credit Reporting Act. Every 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 are clever however and will relentlessly try to collect old debts that you have no legal obligation to pay anymore.
After 7 years, any old debts in which judgments have not been obtained against you are no longer your responsibility to pay and should be removed from your credit report. However, it is your responsibility to alert the credit reporting agencies to remove old outdated information from your report. Companies will never do so. Alert the major credit bureaus to remove old delinquent debts older than seven years. Also, check your report for errors and inaccuracies that are dinging your credit as well.
3. Negotiate with the creditors that you do owe.
Negotiating with your creditors is an effective way to improve your credit score and adjust your debt repayments to a manageable level. You can negotiate with creditors by phone, mail, email, or online chat. I have found that mail is the best way to communicate with creditors as you have a written documented record of all communications. Creditors have been known to lie on the phone in order to get a payment from customers. They will offer deals that they do not honor and make promises that they do not uphold.
A written letter is the best way to go as you have a record in case of a legal proceeding. It also saves you from verbal threats and harassing phone calls. Send your creditors a debt settlement letter letting them know what you are able to pay and how frequently. Creditors will either accept your offer or respond with a counteroffer of what they are willing to accept. Many creditors will take pennies on the dollar to settle an old debt. I have settled debts of $5800 for just $1200, once the company had written it off. It is quite common for a company to take a fractional percentage of a debt that has been written off as a bad debt expense.
4. Build new credit.
Once your past due debts have been paid up to date, it’s time to start building a good credit score. If you do not have any open credit lines, I recommend getting a secured credit card. Secured credit cards require you to open a bank account which stands at the guarantee backing the credit card in the event of nonpayment. In order to get a $500 credit limit, you have to deposit $500. You can never outspend your credit limit since it is backed by a cash deposit. Secured credit cards are useful for those looking to rebuild their credit as you can buy one or two items, pay them off quickly and watch your score rise! Keep the secured card for a year or two in good standing and you will receive offers for unsecured cards with higher credit limits. Just be sure to get a secured card with low fees and a decent interest rate.
5. Pay your new debts on time.
In order to keep good credit, you must pay your bills on time. Pay all your bills by the due date. The best method is to pay all of your bills by their due date to avoid a late fee. One trick I have learned is that if you pay any debt within the 30 day time frame; it is listed on your credit report as paid as agreed even though the company may have charged you a late fee. A late fee does not mean that the payment is reported as late. It is still reported as paid on time if paid within the 30 day time frame. I do not recommend ever paying a late fee on your debts but for those who juggle a lot of debts, it is important to note that this is an option. Paying within 30 days will start you on the path to lower interest rates and higher credit limit offers.
6. Maintain your good credit.
Keep your credit inquiries to less than two a year. Keep your credit usage below 30 percent of the balance. Pay your bills as agreed. Never cosign for a debt that you are not fully able to pay yourself. If you follow these rules, get ready to start receiving 0 percent and low interest credit offers on everything from credit cards to automobiles.
I hope these tips were useful in showing you how to rebuild your credit!
