Five Steps to Repair Your Credit
Have you lost your job in the past, had medical problems or other issues that have caused your credit score to fall? If so, you are not alone. This issue plagues millions of Americans, and it can prevent you from getting approved for a mortgage loan. Fortunately, there are plenty of things you can do to rebuild your credit before buying a home. Listed below are 5 steps that can start your credit repair process. For more specific information, let us help you by setting up a one on one conversation with our approved mortgage lender.
Step 1: Identify the Source of the Problem
Credit problems are a symptom of a financial “distress.” To get rid of the symptoms, a person must first determine what is causing them. You may not have to look very hard to find the source of your financial woes. Perhaps you’ve gotten behind on paying your bills, or maybe you have a bankruptcy in your past. Take a realistic look at your own situation to determine where the real problems lay.
Step 2: Review Your Credit Report for Errors
In a perfect world, the three companies who maintain credit reports in this country (Experian, Equifax and TransUnion) would never make mistakes. But this is not the case. Generally, while mistakes are not common, they do happen quite a lot. So the next step in the process is to order copies of your credit reports from each of the companies mentioned above. You can do this for free by visiting www.AnnualCreditReport.com, a web site that is jointly owned by Equifax, TransUnion and Experian.
It’s important to do this as soon as possible, because it will take time to get corrections made to your credit reports. If you find errors, you can submit a request to have it corrected through the web site of the company that produced the report. Visit their web site and look for a link that says “disputes.” There are laws that require these companies to process disputes in a timely fashion. You will have to be persistent and stay on top of the company until your report is fixed. The last thing you want is for erroneous information to drag your credit score down lower than it should be.
Step 3: Pay Down Your Credit Card Balances
Financial “experts” love to disagree on things. But this is a topic that many of them agree on. Paying down your credit card balances is one of the best things you can do to boost your credit score — and your financial health in general. When you combine this with item #4 below, you will be on the road to recovery in no time.
There are good kinds of debt and bad kinds. A mortgage loan with a reasonable interest is a good kind of debt. It actually helps you build strong credit to make mortgage payments over time. But those high-interest credit card balances don’t do you any good. So work out a budget that allows you to start paying them down.
Step 4: Pay Your Bills on Time
This is one of the most common reasons for bad credit situations — falling behind on the bills and missing payments. From a lenders point of view, it’s easy to see why this can hurt when applying for a loan.
If you are missing payments because you can’t afford to pay them, then you have a budgeting and debt problem. In this case, try to reduce your spending as much as possible, or perhaps consolidate your debt into a lower rate.
If, like a lot of people, you simply forget to pay your bills, then you need to create a system that makes it easier for you. Instead of putting bills aside when you get them from the mail, handle them right away. Better yet, get set up with auto-pay so you don’t even have to think about making the payments on time.
Step 5: Learn to Budget
When you spend more than you earn, you acquire debt, and sometimes begin to fall behind on your monthly payments. Having a clear picture of your monthly expenditures and your your monthly income is the best place to start on you road to better credit. Develop a budget so you can see where your money is going each month and then look for items that can be eliminated.
Improving a credit score is all about discipline and awareness ....making payments on time, reducing unnecessary spending, and pay down your credit card debt is where this process begins. At times it can be hard work, but with focused effort you'll begin to improve your financial picture quickly.
For more detailed information on budgeting and credit repair check out Consumer Credit Counseling Services.