This question has a long answer. However, we’re going to condense this down to a simple statement…
“Pay it off, build it up, keep tracking it”
Really, correcting your credit (credit repair, building credit, etc), will either be a Do-It-Yourself series of actions, or you will hire a professional to help. Likewise, there are also MANY credit counseling services that will guide you through the process. Many of the credit counseling are free, or very, very cheap.
Just a warning, not all credit counseling services are created equal. You will want to do some investigating as to what they are able to do for you and the impact it has on your credit going forward.
For this article, we’re going to assume you will be performing DIY credit repair.
Where do we start?
The best place to start this whole process is to request a free copy of your credit report. You can get this by visiting this website (https://www.annualcreditreport.com). You can receive your credit report from the Big 3: Experian, Equifax and TransUnion.
Your credit report lists a lot of your information:
- Name
- Address (current and previous)
- Phone
- Employer (and previous)
- All open, closed, revolving credit accounts (loans, credit cards, etc)
- When the account was opened
- If the account is considered current, late or completely delinquent
When you get your reports, make sure that all of the information is 100% accurate. All of the accounts are yours. Your previous work history is correct. All requests for credit are correct.
If anything is wrong, contact your credit agency of that report to correct it.
Next, we need list all of the bad debt
We have all of our credit history in front of us. We can see the bad credit, and the good.
Now, we need to list the offenders – bad credit, delinquent accounts, late payments, etc. Even if its a credit card that you are only making minimum payments to, you should list them here.
What do we need for this list?
You need the name of the account. You need your account number. You need to record the current balance. As well, you should record the contact details for the creditor.
Now, we can start breaking down how to combat these accounts.
Creating a plan to attack bad debt and old creditors
There are a few ways that you can go about deciding on which creditors to pay first, for how much and when.
The first to try to pay off the largest debts first. You can list all debts based on their balances. The largest go first, right down to the smallest.
One thing to consider when using this strategy is paying off the debt in one lump sum, and closing the account. Sometimes you can negotiate down these balances, especially when the balance has been delinquent for longer than 90 days.
The next plan you can use is to pay off the lowest debts first. This method might be attractive to someone with many open and bad accounts, because those accounts can be paid off much faster freeing up minimum payments to be applied to the next smallest debt.
The final method we’ll look at is a mix of the two: pay off the lowest debts, while negotiating and setting up payments for the largest debts. This is effective for those with multiple accounts, that are both considered “high ticket” and for old accounts.
Now, we need to call, negotiate and make the right deal (where possible)
Depending on how late your account is considered, a creditor may accept a percentage of what is owed by you, rather than the full amount. In all truth, for delinquent accounts, these have been written off of their books if over 180 days in many cases.
But, before calling and negotiating, write down what you would be willing to pay.
Once you have discuss your balances with old creditors, now, stick to the schedule. If you are on a payment agreement of some type ($100 a month, 60% paid in full of the balance, etc), stick to it.
But, how do we rebuild my credit starting right now?
Now that you have addressed your credit history, you have started addressing those creditors and those balances, now what? Literally, you have gone from having terrible credit to climbing back to normal.
The next step is easy: build your credit up!
To do this easily, safely and simply, start with a secured credit card. A secured credit card is a credit card that you pay money on (as a maximum account limit), and then use like a normal credit card.
This is not the same thing as a Green Dot card, or a gift Visa of a gift Mastercard.
Instead, this is a credit card product you get through a bank or credit union. When you start the account, you deposit funds into it. Sometimes the amount can be as low as $250. Other times, you may need to deposit $500 – $1000.
The amount that you deposit is your limit. As well, each card will have its own terms.
The best part about cards like this are that:
- Your credit score doesn’t contribute into your ability to create an account
- If used correctly, this credit card can only increase your credit score
- Over time, using this card wisely can lead to your ability to have a normal credit card with this company