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What Happens When Your Credit Is Damaged?
Do You Have Recourse?
The good thing about bad credit is that you can fix it. If you start
now, over time, your bad credit can turn into good credit, and you
could qualify for the loans you want at the rates you want. The most
important aspect of rebuilding your credit after it has been damaged
is showing lenders and creditors that you are serious about repaying
your debt and that you can be a reliable borrower over a significant
period of time.
Negative account histories remain on your credit report for up to 7
to 10 years, depending on the type of action. Bankruptcy can stay on
your report for up to 10 years, and collections drop off after 7
years.
Advice varies widely as to the best methods to rebuild your credit.
Some points most experts agree on include:
• Starting small – Don’t be intimidated by large debt amounts.
Even small payments, made on a regular basis, will improve your
payment history and, eventually, your credit score.
• Spending less than you earn – Borrowing money to finance a
lifestyle that is beyond your means will only land you deeper in
debt.
• Paying your bills on time – Building credibility as a borrower
involves meeting your commitments to pay, early if possible.
• Keeping your balances low – When using your healthier or newer
accounts, keep the balance that you owe between 25% and 50% of your
line of credit. An average of 30% is suggested.
• If your credit is damaged and you need more information about the
three major credit bureaus, email ctaylor75@prepaidlegal.com
Other tips might not seem related to your credit score. Staying at
least two years on the same job demonstrates steady employment, and
you appear more stable to lenders. You can also open an emergency
savings account. Contribute to the account a little at a time on a
regular basis. This will not only appear as positive activity to
lenders, but also will serve as reserve money to keep you from
charging unexpected expenses. Finally, stop borrowing for a while.
Certainly avoid borrowing more money from home equity or other lines
of credit to pay off credit card debt. Shuffling the debt does not
make it disappear.
When establishing new credit, it may be necessary at some point to
open a new account once you have paid down your existing ones.
Credit unions usually offer the best deals to people with damaged
credit. If you are unable to qualify for a credit card, try a
smaller company, such as a department store or gas station that
might offer you a line of credit.
You may want to look into getting a secured credit card. Offered by
several banks and credit unions, secured credit cards are a positive
way to show lenders that you can pay bills on time and be trusted
with credit. To use a secured credit card, you will deposit a sum of
money into a savings account and pay a small yearly fee to the
institution offering the card. If you deposit $500, you will have a
line of credit up to $500. Using your card on a regular basis and
paying it off monthly in full could lead to a traditional line of
credit. Once the bank or credit union sees that you are capable of
maintaining your secured account, they may extend an offer to you
with a fair interest rate.
Another option is to have a friend or relative co-sign for a line of
credit with you. This step is risky because you are not only
gambling with your loved one’s good credit, but also with their good
faith.
After a few months of good behavior, order copies of your credit
report from all three credit agencies and check for improvements or
errors. Be sure that negative information that you have remedied has
been removed. File any complaints in writing and check your report
again in a few months to ensure that the changes have been made.
Repairing damaged credit is time-consuming but well worth it, both
to your peace of mind and to your pocketbook.
For more information about identity theft prevention contact Cathy
at 949 635-4923
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