How to Repair Your Credit

With the US economy slowly crawling its way back to normal, many Americans have to evaluate their financial situations. For many of us, coming through this is the equivalent of riding out a hurricane and now coming out to survey the damage done. Many Americans have to look at the very real fact that their credit ratings have dramatically suffered due to a host of reasons. Americans have had to deal with the housing crisis, massive lay-offs and soaring prices in everyday needs such as gas, produce and household utilities. We now fact the very real challenge of repairing our credit ratings. For over 15 years, I have worked with companies and individuals in the world of credit and here are few things you need to know about how to repair your credit.

Be Patient

Building good credit took time and rebuilding will take just as much time. Many companies will throw quick fix solutions at you and they never work. Rebuilding your credit will take time, patience and perseverance so don't fall for the quick fix gimmicks. They're all rip-offs.

Order Copies of Your Credit Reports

This is the first step in rebuilding your credit. Get copies of all of your credit reports. You are entitled by law to receive a free copy of your credit report from each of the major credit reporting agencies each year. You don't have to pay for them, but it is a good idea to have regular access to your credit report once the repair process has begun.

Start the Cleaning Process

Once you look at your reports, immediately find any items that are older than seven years and dispute them to get them removed from your credit report. Some items such as bankruptcies have a ten year reporting life, but the older items need to be removed. If you have items that are around six years in age, then it is best to leave them alone as they will be falling off of your report in a short time anyway.

Evaluate Your Creditors

You will need to take a look at each of your creditors and rank them in order of priority. Items that appear across all the credit reports should get a higher ranking than others as the impact is bigger. Items like medical bills should have a lower ranking than big ticket purchases such as cars or mortgages. Items that cannot be paid in full should also receive low rankings and should be ordered by how much time it will take you to pay them off.

Contact Your Creditors

First contact the creditors that you can pay in full and reach a settlement agreement. Start off by offering them to pay 40% - 50% of the reported balance. If this is a bank card, your balance probably has a lot of fees and interest built into it. Let them know that you are in the process of working with creditors and that the ones that are willing to negotiate get paid first. Any agreements that you make with the creditor should be put in writing. Those that are not willing to put the arrangement in writing should set aside. I have heard of creditors accepting as little as 30% of the balance and marking the debt as paid on the consumer's credit report.

Don't Take Too Much On

Be realistic about what you can handle and don't take on several payment plans at once. A good rule of thumb is to knock them off one or two at a time. Instead of paying 6 to 8 creditors over the course of a year pay off one or two per month. Pay the ones that are still accumulating interest or fees first and make sure that you get the agreement in writing.

Make Long Term Plans for Larger Debt

Believe it or not, if you are 6 to 8 months behind in your mortgage you can still refinance your debt. The banks don't want your home and you should do what you can to work with them. There are government plans available to many that will help you refinance your loan with much lower interest rates. If you are 2 or 3 payments behind in your car, some companies will allow you to move the payments to the end of the loan if you pay the interest on the past due payments. This will get you immediately caught up and make a significant mark on your credit report.

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