I never paid much attention to my credit rating until I worked for a couple of years in the car business. I was privy to credit ratings on all kinds of customers, and it really drove home for me just how important a good credit rating is. Once I learned to read the credit reports and process them properly, I was appalled at the financial situations that seemingly intelligent, responsible adults could allow themselves to get into. I vividly remember a couple who, together, made around $250,000 each year and yet I couldn’t even get them approved to buy a $10,000 car. I'll also never forget their explanation...."Oh, we have the ability to pay, Mr. Ritchie, we just don't have the inclination." What to say but "wow".
From that point on I became almost rabidly anal (don’t ask) about keeping my credit score as high as I could get it. Bills were paid on time, and card balances were paid off every month. I’m 44 years old and my credit rating has never dropped out of the 700’s. Of course I’m also going through a divorce right now which is notorious for wrecking credit ratings, so we’ll see what happens, right?
Unfortunately, a lot of people feel that if their credit is ruined, then it is ruined for good. This is not so. Even if your credit rating is below the basement (750 is excellent, 650 stinks, below 600 means you’re pretty much screwed), you can still come back. All it takes is some due diligence and financial discipline.
Firstly, you’ll want to order copies of your credit report from all three credit bureaus, Equifax, TransUnion, and Experian. Not everybody reports to all three bureaus, so you will need all three to glean the most complete picture of your current credit condition. You can do this for free once every year, and it is recommended even if your credit rating is excellent.
Resolve your debt. Out of control debt is one of the main reasons people have low credit scores. Devise a spending plan that reduces your debt and gets you set up to pay everything on time, each month. If you are in a difficult spot, don not hesitate to call your creditors and tell them….many will work with you to make sure your debt doesn’t end up being classified as delinquent or “bad debt”. Ask for reduced monthly payments, or perhaps changing the date your payment is due in order to help balance out the month.
If you have any accounts that are already in collections, deal with those first, as they are the ones poised to do the most damage to your credit score. Slowly close out any unneeded or unused credit cards or accounts.
Most advisers suggest carrying no more than three credit cards (I carry a whopping one, if they don’t take Discover, I’m out of luck).
You can also be proactive in adding information to your credit file. Some outfits do not report activity to the credit bureaus….so determine which accounts you are good with and ask them to report your activity.
Before opening any new accounts, ask them if on-time payments will be reported to the credit bureaus.
If you have really bad credit, such as the notorious bankruptcy, then it is important to begin rebuilding good credit right away. This may be easier said than done, but you will find companies that will extend you that second chance. And when they do grant you that chance, for heaven’s sake, don’t screw it up. Pay your bills every month, on time, every time. The faster you do so, the faster you will improve your credit score.
Quick note: don’t go overboard. Too many credit applications can look bad and have a negative impact on your score. Look for the best deals, interest rates, etc., before applying for new credit.
Open a savings account at your bank (and keep adding money to it). This will show your creditors that you are serious about working hard to save money and that you have sufficient funds to repay debts.
Of course you must beware the scams that go along with any credit repair efforts. You will receive mail, e-mail, and phone calls from companies offering to help clean up your credit report…..once you pay them an upfront “administrative fee” of course.
There are numerous red flags to alert you if a company is only seeking to separate you from your money:
If the company wants you to pay upfront for credit repair services. No reputable company will ask for a dime until services are satisfactorily rendered.
If the company doesn’t advise you on what you can do for yourself for free.
If the company recommends that you do not contact any of the credit bureaus.
If the company advises you to invent a new credit identity, or if they ask you to dispute all the information on your report, even if it is accurate and timely.
Even legitimate companies like Consumer Credit Counseling can have an adverse effect on your attempts to rebuild. Many of the services CCC advertises are things the average consumer can do themselves, mainly contacting your creditors and seeing if there is a way to work through your difficulties and make things right.
If you take care of things yourself, you don’t have the negative stigma of working through CCC on your credit history.
Taking the proper steps, in the proper order, not to mention exercising some fiscal responsibility and self-control, will go a long way towards helping you re-establish a healthy credit rating.
Now go therefore and spend wisely…..
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