When life gets tough, it can be easy to fall behind on your debt payments. Unfortunately, as your debts stars to pile up, your credit may be damaged. Bad credit can affect almost every aspect of your life. You may find difficulty with opening a checking account, obtaining a credit card or car loan, buying a dream home and even finding gainful employment can be challenging.
The most common causes of bad credit are unemployment and unpaid medical bills.
With damaged credit, it may become difficult to get back on track- as credit limits are lowered and interest rates are raised.
Buying a home with bad credit can seem like a distant fantasy and an impossible dream. Many have people have walked this road and many more will walk this road in the future. Knowing how to navigate around this situation and knowing how to repair credit can be extremely beneficial.
VantageScore vs. FICO Score
The VantageScore and FICO Score are the most common factors lenders use to evaluate credit. Credit scores can range anywhere from 300-850, with the a higher score meaning more credit worthiness.
Your payment history is significantly weighted in calculating a credit score. Both consistent and timely payments are critical in achieving and maintaining a good credit score.
Your credit utilization ratio- the amount of revolving credit you’re currently using, is also very important. A common guideline is not to utilize more than 30% of each credit line. You may find that having different lines of credit make it easier to keep your balances at or below 30% of the credit limit.
Credit utilization is calculated by dividing the balance by credit limit for each card and for all cards together.
Get a Free Credit Report
A good place to start is with getting a copy of your credit report. There are three nationwide credit reporting companies. These include:
- Equifax
- Experian
- Transunion
You are entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies.
You can contact these companies to request a copy by:
- Go online to Annual Credit Report (The only authorized website for free credit reports.)
- Call 1-877-322-8228
- Mail a request to: Annual Credit Report Service, P.O. Box 105281, Atlanta, GA 30348-5281
FYI- You will be required to provide your name, address, social security number, and date of birth to verify your identity.
Reviewing Your Credit Report
First- be wary of any impostor websites and be sure to type the web address exactly or use this link- Annual Credit Report.
Once you have a copy of your credit report, it is important to carefully review to properly interpret the data.
You will find five major categories on your credit report:
- Personal information
- Open accounts (paid monthly)
- Accounts that have been reported as in default
- Public records
- Inquiries
Keep in mind that the credit reporting companies report information given to them by your creditors. This information is received when you fill you out any credit applications. (Hence the importance of always completing applications accurately and legibly.)
You may find different spellings of your name, address (both present and past), as well as employment.
Most items will be on your credit report for seven years, though items such as bankruptcies and tax liens can last up to ten.
After a careful review, verify that all of the data listed is accurate. Report inaccurate information by disputing inaccurate or incomplete information. Again, it is imperative that you report inaccurate and incomplete information on your credit report.
Many people do not realize the power of disputing items listed in your credit history.
Most of your credit repair can be done by utilizing this with this simple practice. Know your rights. A great resource is the Fair Credit Reporting Act (FCRA). The FCRA and other great credit resources can be found- here.
Credit Repair Facts
Hiring a credit repair company can be tempting. Be wary! There are many scams that pretend to help but are in fact simply trying to steal your information. Considering simply saving the fee for this service.
Everything that credit report companies can do, you can also do.
If proper steps are taken, one can very easily repair your own credit in a fairly short amount of time, at little to no cost.
Keep in mind, delinquent accounts can be negotiated. Tax refunds are a great source to rid yourself of old debts.
Addressing delinquent accounts is paramount. Many people do not realize that one or two delinquent accounts can be the only thing holding them back from owning your own home.
Contact past creditors of delinquent accounts to see if they are willing to negotiate for a discount. For example- Many creditors with a delinquent balance of $600, may happily accept a total lump sum of $400 (or less), rather than waiting for years of payments to receive the full amount.
Understanding how credit works and cleaning up any errors on your credit report is half the battle to winning your financial freedom. After that, it is simply a matter of building up and maintaining your credit scores.
A Simple Credit Building Strategy
Start with one simple line of credit. Secured credit cards or low limit, high interest rate credit cards are a good place to start. Instead of using a debit card for your daily life purchases, such as gas and food, use this card.
The most important aspect of this technique is making sure you pay off the entire balance at the end of each month. This way you avoid paying any interest.
This will allow you to begin establishing credit and will increase your scores. As you establish a positive credit history and your credit scores increase, you will become eligible for lower rate credit cards with higher limits.
Don’t forget- keep your credit utilization rate for each card at or below 30%.
The key here is consistency in making your payments on time. Do not live beyond your means and do not be tempted to use your cards to buy frivolous items.
Repairing negative credit, building new credit, and consistently maintaining your credit balances will yield positive results. You will find better terms, higher credit line, and possibly better employment. In no time at all, you will easily be the proud owner of your very own home.
We believe that even if a household is not ready to buy a home, they should have a way to move into a home of their choice, with a path to own that home if they would like. The dream of owning a home can be a reality with our Lease Purchase aka Rent To Own Homesprogram. Learn more.
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