Monthly Archive for June, 2009

Bankruptcy does not spell death to your credit, nor does it mean the end of any chance that you will have for a lifestyle full of creature comforts, home ownership, a nice car, travel or other trappings of “the good life.”

Many people are afraid that bankruptcy is a persistent black mark on their credit histories, a a sort of scarlet letter. But the facts are that, at the very worst, a bankruptcy will only remain on your record for 7 years. Within that time there are numerous steps that you can undertake to greatly enhance your credit score to the point where the bankruptcy has a minimal influence on your ability to acquire credit. We will describe a few in the passages that follow.

The first, and probably most overlooked, step to undertake is to reexamine your credit choices. Generally people wind up in a bad credit situation by making numerous,seemingly innocuous at the time, credit choices. The live now, pay later mentality is easy to succumb to but invariably has negative effects on ones financial well being. Take a cold, hard, honest look at the steps you’ve made to get yourself into your predicament and make a conscious effort to change your behavior. This, of course, entails paying your bills on time but equally important is to refrain from overextending yourself.

Establishing new credit is an inherent step in the credit repair process. There are several methods to establish new credit even with a poor credit rating. Obtaining a secured line of credit or credit card from your banking institution is easiest. You can do this by depositing an amount of money, which acts like collateral against a credit card with a limit which is equal to the amount which was deposited. Other relatively easy sources of new credit are department stores, furniture stores, home electronics stores and various retail outlets such as Walmart or Home Depot. These stores are often more lenient than other lenders in that by providing credit to you they are almost assured of gaining you as a new customer.

After you have set up new credit sources it is of great importance that you start building a positive payment history associated with these accounts. You of course need to make your payments in a timely fashion, but it is also important to keep the balances on these accounts as close to zero as possible. One factor that is part of the FICO score is the amount that is currently owed. The lower the amount owed in relation to the credit limit the better.

Here is a strategy that will aid you to make your payments on time and keep your balances minimal. It is very simple, and will probably be obvious to some, but is nonetheless exceedingly effective. Every month make a nominal purchase on each of your credit cards, around ten dollars or so. When your next bill comes, pay the balance in full. Do this each month and you’ll be building an excellent payment history as well as maintaining a very low amount of debt. This will go a long way towards improving your credit score. If you can keep up this practice over the period of a year or two your credit score will improve greatly, hopefully to the point of offsetting your bankruptcy in the eyes of other creditors.

Credit is becoming increasingly important in today’s society. Good credit most often will allow savings on everything form mortgage loans to car insurance rates as well as creating possibilities for acquiring loans for auto purchases and, of course, mortgage loans. Poor credit, however, will negatively impact your life in an opposite fashion. There are numerous companies which provide credit repair services but it is also possible to repair your own credit, many times with better results, if one adopts a sound credit repair strategy.

The first step in any credit repair process is debt validation. This is obtaining your credit history from the three major credit reporting agencies, Equifax, Experian and Trans Union. Upon receiving these reports read each and every item in the reports. Look for any errors or discrepancies. If there is anything that you think is on your report that shouldn’t compose a letter to the corresponding creditors asking for debt validation. If they do not supply you written proof of the debt within 30 days they are obligated to remove the entry from your report and supply documentation to this effect.

After you have removed any false information from your reports write down all remaining outstanding debts. Get in communication with any collection agencies that show up on your report and formulate a payment schedule with each one. Make sure it is within your means. Also ask if they will contact the credit reporting agencies to remove the negative entry after you have paid the account in full. They are generally amenable to this provided you fulfill your payment commitments.

While you are paying off your debts, according to the schedule you have set up, you can also begin to establish new credit. One way to do this is to set up a secured credit card with your bank or credit union. This is done by depositing an amount of money, which serves as collateral for a credit card with a limit equal to the amount you deposited. It functions the same way as a debit card but is actually a credit card and will show up on your credit report as such. Every month make a nominal expenditure on the card and repay it immediately. In doing this you will show a positive payment entry each month for the card in question.This will steadily increase your score.

Repairing your credit will prove to be worth the time and energy you put into it. Many times over, in fact. Not only will it allow you to get loans for very expensive purchases, such as a new auto or, perhaps, your dream home, but an improved credit score will save you money. The interest rates lenders levy on loans are a direct result of your credit score. A high FICO score will result in much lower interest payments on almost any credit you apply for. But there are other less obvious ways that a good credit score can benefit you. Your car insurance rates, your apartment rent, and many others can also be affected by your credit score.

If you are reading this you have undoubtedly gotten yourself into a bit of a pickle with your finances. There are several basics to the ins and outs of credit and how credit works. Learning these principals can greatly aid in a effort to repair ones credit.

The first and most obvious practice is to make your payments on time each month for at least the minimum, preferable more. An excellent rule of thumb is to pay double the minimum payment due. Many credit card lenders have set up the minimum payment so that after interest and service charges are deducted the amount that actually goes towards reducing the balance is just a few dollars. This has the effect of keeping your balance, and interest payments, high and greatly increasing the time it will take to pay down the balance even if no new purchases are made.

While making multiple timely payments each month can be a benefit, sometimes reducing the number of outstanding credit cards can be the best strategy to employ. This can help in two ways. Paying off a credit card and closing that account will show positively on your credit report. The other advantage to doing this is that it makes making timely payments on your remaining accounts that much easier.