6 Dead Simple Steps to a Healthier Credit Report

Repairing your credit after a bad financial spell can be a difficult and tedious process. The steps are long and confusing and facing your financial failures and foibles intensely for a long period of time leaves you overwhelmed and blue. If part of your New Year’s Resolution is getting your credit score back in the healthy range, try these easy to digest steps this month.

6 Easy Steps to Get Your Credit Back on Track
Step #1: Set the right tone with a good attitude. Any credit repair begins with admitting you’ve made mistakes in the past, but you’re committed to making positive changes now. As you examine your credit report, keep in mind that while you can’t change the mistakes you’ve previously made with your money, you can start new habits and stop beating yourself up over what cannot be changed. Steel yourself with a pep talk, and print several copies of your credit report.

Step #2: Make special note of any inconsistencies and all inquires reported. Credit report mistakes are very common as are unauthorized credit inquires. Make a detailed list of any and all suspicious entries, including any inquiries that you did not personally authorize. This list should be sent to credit bureau as a formal dispute, explaining the listed entries are “highly injurious” to your credit report and should investigated for removal. If you use this terminology, any contested entries that the credit bureau cannot verify within sixty days of receiving your formal complaint must be removed from your credit report. It is important to include unauthorized inquires on your list as these can take up to a year to be removed without your intervention, and any inquiry that does not result in a new line of credit can be cause for refusal of future credit. It may take four to six weeks to hear back from the credit bureau.

Step #3: Once all false information is removed, you should make a list of any remaining valid entries, and contact your debtors directly to make arrangement for payment of any outstanding debt. They may offer a payment plan, a settlement, or both in exchange for withdrawing the entry on your credit report. There are consumer credit agencies that provide this service for you for a fee, but most consumers can successfully arrange the same types of deals with creditors and avoid paying the credit agency’s fees. Make sure to get the payment agreements, datem and the name of the creditor in writing before sending any money for such a plan. This helps protect you from further discrepancies and provides proof of the deal should the entry remain on your credit report after payment is made.

Step #4: If you have overwhelming credit card debt, try paying the minimum amount possible on all cards except one. Take the credit card with the lowest balance and pay as much as possible every month on that card until it is paid off. Then, take the money you were paying on the first card and put it toward the next lowest credit card. The exception to this process would be if you have one particular credit card with a higher interest rate. This card should be targeted first to prevent escalating balances from paying the minimum due every month. If your credit card balances are similar, pay off the lowest balance card first. This process creates a sense of accomplishment and knocks one credit card off your credit report sooner than trying to juggle paying off all your outstanding cards.

David’s Note: The method described is what works for Jamie. You may want to check out the difference between the two competing debt snowballs philosophies: highest interests and smallest loans first before you decide which method of paying off your debt you wishes to pursue.

Step #5: The only way to repair your credit is to use it. While this seems a little counterproductive, creditors want to see that you are capable of managing your money effectively and paying your bills on time before they extend a line of credit to anyone with a shaky credit history. Apply for a secured credit card, a merchant card, or a bank credit card. Forget about 0% balance transfer credit cards because you won’t be approved for them yet. If you can’t obtain one of these due to your previous credit, try purchasing something from a rent-to-won store and use them as a credit reference. You can also place something on layaway at a retail store, make regular on-time payments, pay off the balance within a month, then apply for a store credit card. Your layaway recepts prove your trustworthiness, and a personal interview with the credit manager may secure you a store credit card. You can apply for a credit card from providers such as Fingerhut, WalMart, BP Oil, Citibank, Orchard Visa, or the National Wholesale Company.

Step #6: Use your new credit responsibly. Identify your weaknesses that led to your financial problems in the past. Do you have difficulty making payments on time, budgeting your money, controlling impulse spending, or keeping an accurate bank account balance? Unless you know what your weaknesses are, you are setting yourself up for repeat financial failure. One method to try is setting up a special account to build your new credit. Place a couple of hundred dollars into this account as a cushion, and set a monthly budget to spend. Have this amount direct deposited into the account from your employer every month. You then have the freedom to spend your budgeted amount every month, knowing you can pay off the entire balance with the funds from your credit building account. You can even opt to have payments set up as an automatic draft every month if you have difficulty remembering to place a check in the mail on time. You can also choose to charge items such as gasoline and groceries to a credit card, and place the cash you would normally use to pay for such items into a special envelope or bank account to pay off the credit card balance every month.

Rebuilding your credit can be slow and difficult, but setting small goals and being diligent about making positive lifestyle changes can create lasting change in your financial state. If you’ve had success in rebuilding your credit score, what tips do you have for others who are struggling to make a difference?

Tagged as: Credit, Credit Cards, Debt