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8 steps to rebuild bad credit
Dear Dollar Diva,
I need an action plan for rebuilding bad credit.
Can you help?
John
Dear John,
Improving your credit does require an action plan. Follow the Diva's
8-step plan for rebuilding bad credit and watch yours get better
with each passing year.
When it comes to credit, current good behavior counts
more than past mistakes, but you don't get your halo until all of
the negative data is off your credit report. That takes seven years;
10 years if you've gone through the agony of bankruptcy.
Here is the 8-step plan of action that's going to
help you earn that halo:
1. Stop job-hopping:
Stay at least two years on the same job; steady employment sends
a message that you're stable;
2. Go to night school:
Education is the ticket to higher earnings; high income is a credit
asset.
3. Spend less than you earn: For
some tips on spending less, read the Diva's "Paying
down your credit cards: a 10-step plan."
4. Open an emergency savings account:
When you make systematic deposits to a savings account, it sends
a positive message to lenders. Better yet, with money in the bank,
you won't have to rely on plastic for unexpected bills. But remember,
this is an emergency account: Don't tap it for nonessentials, such
as that family trip to Disneyland.
5. Pay your bills early: A
history of early payments gives you credibility when a payment is
late and it's not your fault.
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Credit reporting agencies
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6. Stop borrowing:
Debt is the problem, not the solution. Don't take on any new debt
and keep your cotton-pickin' paws off your home equity. A reader
laments over his decision to use home equity to pay off credit card
debt in the Diva's "Second
mortgage turns into debt nightmare."
7. Close credit card accounts as soon as
they're paid off: You can't be tempted
to use them if you don't have them. Read the Diva's "Closing
your credit accounts" to learn how to close them in a way
that will not harm your credit report.
8. Get copies of your credit reports from
the three major reporting agencies: Check
for mistakes, including old negative data that shouldn't be there
because it's more than seven years old or more than 10 years old
if it's a bankruptcy. To learn how to fix the errors, read the Diva's
"How
do I fix my credit report?"
-- Posted: Oct. 15, 2001
 DOROTHY
ROSEN has a master's degree in finance, with a specialization in
accounting, from the Kellogg Graduate School at Northwestern University
in Evanston, Ill. Rosen has more than 15 years of experience in
the financial arena, serving in Illinois and Florida as a certified
public accountant, financial consultant, expert witness and educator.
She is owner of Dorothy Rosen, CPA, a public accounting firm that
serves individuals and small businesses.
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