Credit Repair Kit For Dummies
Repairing damaged credit pays many dividends, so start by building a credit record that the three main credit-reporting agencies consider worthy. If you get to the point where you can't make mortgage payments or have other credit problems, a good credit counselor can be worth his or her weight in gold.
The Big Three Credit Bureaus
If you're trying to repair your credit, you need to know the three main credit-tracking and -reporting agencies. The "big three" organizations in the following list track your credit, assign you a credit score, and report on both when requested to by a legitimate source. Check in with each annually to see where your credit stands.
How to Handle an Overdue Mortgage and Preserve Your Credit Rating
When your mortgage is late, take immediate action to help preserve your credit, which is always much easier to do than repairing damaged credit. If you're having trouble making your mortgage payments, take the following essential steps:
Call your lender or servicer immediately if you're going to be late. The worst thing you can do is nothing. More programs are available to help today than ever before.
Contact a HUD-certified counseling agency for more options. (Go to the Housing and Urban Development Web site or call project HOPE at 888-995-HOPE). A HUD-certified counselor can advise you on options and refer you to local resources that you may not know about.
Don't allow your mortgage to become 90 days past due. Partial payments may not be accepted after 90 days. After you're late, your grace period disappears, so a foreclosure action may be two weeks closer than you think.
Beware of companies who contact you to offer help. Some companies will try to take advantage of your problem by charging high fees for themselves.
Find out your alternatives to foreclosure at the Federal Trade Commission's Web site.
If your mortgage is in jeopardy, contact someone for help fast. The earlier you act, the more options you have available.
Questions to Ask a Credit Counselor
In the process of repairing damaged credit, a good credit counselor can be an invaluable resource. Finding a good counselor is all a matter of knowing which questions to ask. Following is a list of the most important ones:
Is your organization not-for-profit? You definitely don't want an agency that's not nonprofit. But that said, some nonprofits are shams.
Are your agency and counselors certified? Who provides the certification? Both the Council on Accreditation (COA) and the International Standards Organization (ISO) accredit nonprofit credit-counseling agencies. The National Foundation for Credit Counseling (NFCC) and the Institute for Personal Finance (part of the Association for Financial Counseling and Planning Education [AFCPE]) certify credit counselors.
What fees will I be charged? Do not, under any circumstances, work with an agency that charges a large up-front fee. The best agencies will work with you for free. Depending on the agency, if they recommend a debt-management plan, you may pay a monthly fee (no more than $50 to $75 per month), and the agency may charge a one-time setup fee (which should not exceed $75 to $100).
How long will the counseling take? Anything less than 30 to 45 minutes will just deal with surface issues and won't help you to set new goals, understand how you got into debt in the first place, or figure out how to stay out of debt in the future.
What lifestyle changes will I need to make to be successful? To be successful in getting out of debt, you probably have to make changes in your spending habits. The agency should help you learn to budget, set financial goals, and begin a savings program.
Tips for Building a Good Credit Score
Building good credit takes time. Whether you've made some mistakes and need to repair your credit or just want to keep your credit looking good, the tips in the following list offer good advice:
Review your free credit report every year. You can get it for free!
Keep balances below 50 percent of your credit limits. Your balance is the second biggest factor affecting your score. High balances mean high risk and maybe higher interest rates for you.
Dispute any errors or out-of-date information. Up to 25 percent of credit reports have errors; yours may too. Disputing negative errors can boost your score.
Pay your bills on time. The largest part of your credit score is based on your payment history. Get a system in place that suits your style to make sure you don't forget any due dates.
Keep your accounts open longer. Length of credit history is another important factor. Don't close your older accounts if possible. Add new accounts if you like, but don't automatically close your older ones when you do. Doing so can cause you to lose points for having new inquiries, adding new credit, and having a shorter history.
New credit can lower your score. In the short run, the combination of more available credit and more inquiries on your account can increase your risk profile and lower your score. This is most sensitive for those without a long credit history. The bottom line is that you should only add new credit when it makes sense, not just to have another card or to get an incentive gift.
Use more than one type of credit. Open a variety of accounts to show that you can manage credit cards, retail accounts, installment loans, and other types of credit.
Accurate negative information stays on your credit report for seven to ten years. However, it counts for less every time you add positive information to your report. Most credit scores look heavily at the last two years of history, not all seven.
Secured cards can help establish or reestablish credit. These cards are backed by your savings and build a positive payment history with the bureaus. A positive payment history improves your score.
Cosigning for anyone is dangerous to your credit score. If they default, you might not know about it for months. You will not only be responsible for the debt, but your credit score will suffer as well.