Repairing A Bad Rating

You're in over your head, and feel like you're treading water. All you can make are minimum payments, and when there's a family emergency, you fall behind in your payments. All of this affects your credit history in a negative way. What are your options?

Budgeting
Lock your credit cards up, don't CUT them up! If you cancel them while having financial difficulties, you may find it hard to get one again.

In order to get an overall look at your family income and debt, you need to sit down and total up what your net income or take home pay is, against what you owe in everyday living expenses and regular bills, including your credit cards. What's left over when you subtract the expenses from the income is referred to as "disposable income". From this, you may be able to pare off some extra, to begin paying back the worst of your debts.

But don't leave yourself high and dry. Try to put 10-15% into a special account or fund for emergencies, and DON'T touch it. If you build up a few hundred dollars with saving and budgeting, take a couple of hundred and put it against your highest interest debt. The sooner you pare down the principle, the less you're going to pay monthly, and the sooner it gets paid off entirely. Then you can apply any extra income to your next highest interest debt, and so on.

Budgeting isn't always easy, but it can be done. Many families are surprised when they sit down to look at what they need, versus what they want. There's nothing wrong with brown-bagging it for lunches instead of going to the cafeteria or local take-out every day. A thermos of coffee, or juices bought at a grocery store (cheaper in large quantities over a vending machine) puts that change back in your pocket. Car pooling saves wear, tear and repair on your car, plus gas costs. Shop the second-hand stores for children's and adult clothing that you wear everyday and reserve clothes spending only for special occasions or personal items.

Credit Counseling
Contact either the Consumer Credit Counselling Service, or the Federal Trade Commission for assistance in debt counselling. A debt counsellor can help you look at budgeting, negotiate lower payments and/or interest from your creditors, or suggest that you consider a debt consolidation loan, which puts all your credit payments into one monthly sum that is often less than the total of what you are paying now.

However, the CCCS only offers assistance with "unsecured" debts such as credit cards. It cannot help with installment type debts like mortgages.
Remember too, that some creditors may report via their statements, that you are now paying your debt through the CCCS. This can remain on your credit record, even after the debt is fully paid, since it is accurate and truthful information. Some companies may view this in a negative light. But weighed against the disadvantages of having to declare bankruptcy, which remains on your credit record for up to ten years, it is the better choice.

Bankruptcy
Most people shy away from the idea of filing for bankruptcy protection. But when your debts exceed your income, with no foreseeable hope of assistance, there is sometimes no other choice. Bankruptcy law offers two choices: Chapter 13, in which a 3-5 year plan of re-payment is created, and Chapter 7, in which debts are completely discharged and you owe nothing. Plus, you can file for it yourself, with a step-by-step guide, instead of paying a lawyer.

Certain state or federal taxes, student loans under seven years old, and debts created or extended by fraudulent means are not dischargeable. And while law permits you to keep your personal belongings, such as a house and car, it's also allowing you to keep the mortgage or loan on them. Paying those regularly and being fiscally responsible can return you to an "A" credit rating in as little as two years. In an ironic twist, declaring bankruptcy improves your debt to income ratio, and you can then be viewed in a more positive light. But remember that is balanced against the fact that your bankruptcy shows on any credit report, for up to ten years. That's why it is important to re-build your good credit status, by regularly paying bills, and if you still have a credit account that was not closed upon bankruptcy, don't abuse it. It may be your key to recovering a good credit rating.

One important lesson on credit debt is: you do NOT need a credit repair agency! There is nothing they can do, that you can't, with a little guidance, often available free through counselling or the Federal Trade Commission information centre. Bad debts can't be wiped out. Bankruptcy cannot be removed from your record. YOU are the only one who can repair your credit status.

Keeping an eye on your credit status with at least a yearly credit report, will help.

© 2000-2001 My Credit Report 4 Free, All Rights Reserved.
Privacy Policy