 A
5-step plan for improving bad credit
|
 Dear
Debt Adviser,
I'm in the process of trying to buy a home, but my wife and I have
had some credit problems in the past involving student loans, a
credit card and a repossession of a car. What is the best way to
deal with cleaning up our credit? Is there someone I can call that
can help me get this done? We've finally turned our lives around
through promotions and now we want to turn our credit around.
-- Brian
 Dear
Brian,
Wow, did you come to the right place at the right
time! I have just had a book on this very subject released as part
of the popular "Dummies" series. It is called "Credit
Repair Kit for Dummies," and it is on sale, at a discount,
in major bookstore chains for the month of March through a publisher
(Wiley) promotion.
However, in the event you don't
want to shell out any cash for a book, let me give you the column-sized
answer to your question.
It took time, bad decisions, unfortunate circumstances,
etc., to get your credit where it is today, and it will take time,
work and even a little luck to turn it around. I completely understand
your desire to purchase a home. But imagine how much sweeter homeownership
will be if you take the time and steps necessary to improve your
credit so that you qualify for the best loan terms.
My recommendation is to stay away from the companies
that advertise that they can clean up your credit and those mortgage
companies that specialize in "helping" people with bad
credit get mortgages. You can do everything a credit-repair company
can, and you'll probably do it better. Those bad-credit mortgages
are generally pricey, and besides, you'll soon be changing all that
when you get your credit back in shape.
Below are five steps to help improve your credit score.
Remember, even by following the steps, it will take time for your
credit to improve. Think of it in terms of a health issue -- time
heals all wounds, including poor credit scores.
1. Obtain free copies of your
credit reports from www.annualcreditreport.com.
Check them for accuracy. Dispute any incorrect items with the bureau
that reported them. You definitely don't need any additional inaccurate
or negative information on your reports. I suggest you get your
credit score while you're at it. It will cost a few bucks, but it's
worth it, as rates are sensitive to score levels.
2. Create a plan for paying off
any negatively reported unpaid balances such as your repossession,
student loans and that blemished credit card. Potential creditors
understand that anyone can fall behind on a credit obligation. What
they want to know is that you paid what you owed, even if it was
much later.
3. Pay all of your current credit
obligations on time. This is very important, as 35 percent
of your credit score is calculated based on whether you pay on time.
By making payments on time you are illustrating to a potential creditor
that you can be responsible with credit. Try to pay your cards down
to less than 50 percent of your credit lines. This will help your
scores, too.
4. If you do not have any credit
card accounts other than the one that is presenting problems, open
a new credit card account. You might have to get a secured
card if your credit is really bad, but go ahead and do it. You
need to make on-time payments to prove you are creditworthy and
that will be hard to do if you don't have an account on which to
pay.
5. Be patient. In this
situation, you need to think more like the tortoise than the hare.
Slow and steady wins the race. While you are waiting for your new
credit strategies to improve your credit, create a spending plan
so that you don't find yourself in the same situation again. Save
money for a down payment and in an emergency savings account, and
live below your means.
You'll be a homeowner before you know it. Good luck!
The
Debt Adviser, Steve Bucci, is the president of Money Management International
Financial Education Foundation and the author of Credit
Repair Kit for Dummies. Visit MMI
for additional debt advice or to ask a question of the Debt Adviser go to the "Ask the Experts" page
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