debt

Can you get your credit back on track?

Steve BucciDear Debt Adviser,
I was wondering if you can tell me ways to fix my credit, and if you are able to give me an idea of how long it would take. I have some debt and student loans (less than $10,000), but my biggest problem is I have a very bad payment history. So, how can I get back on track? I'm only 24, so I have some time, but I need to get started now if I ever want to own a house.
-- Joslyn

Dear Joslyn,
Yes, you have time to improve your credit. And yes, the time to do it is now. Unlike fine wine (or my wife), debts do not improve with age. By starting now, you can break some bad habits and reboot your credit using more financially savvy habits for the future.

First, if you don't know why you have been late in the past, I want you to take a few minutes and really figure out why you have a "very bad payment history." Don't blame the post office or your bank or anyone else but you. This may be uncomfortable at first, but until you take full responsibility for your credit, it will never improve. Next, you need to actually begin to pay all your credit obligations on time, every time and as agreed. Paying on time consistently is the No. 1 thing you need to do to improve your credit. Should you have trouble making payments on time because you don't have enough money to pay all your obligations, then you need to find out why.

It could be that you run out of money before you run out of month because you are not keeping track of expenses. As a result, you're spending more than you earn. To fix the problem of overspending, I recommend you keep a spending diary for one month. Use paper or your smartphone, but record everything you spend, including the $1 you spend for coffee at McDonald's. This is a small pain, but it will yield big dividends. Then, using the information from your spending diary, cut back on some nonessentials until your expenses are less than your income.

Or, things could be more serious, and your basic necessities (rent, transportation, insurance, utilities and food) are more than your income. Should that be the case, you will need to make some serious changes. You may need to downsize your living arrangements, take in a roommate, or (gasp) move back in with your parents until you can get your income and outflow in sync.

To answer your question about how long it takes to improve your credit, the answer is as long as it takes for you to balance your finances and keep them flawless for about two years. Your credit will only improve as you make on-time and as-agreed payments, adding positive information to your credit reports each month. In addition, if you have any past-due accounts, pay what you need as soon as you can to bring them current. Get a copy of your credit reports for free at AnnualCreditReport.com and look for negative accounts. Even though you are now paying as agreed, some of your accounts may still be reporting as 30 days late because you have not caught up on missed payments.

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