Ultimate Guide to Credit Repair

Everything you need to know about credit repair

Getting and keeping good credit can be a challenge.

First, you have to establish yourself. Then you have to apply for and obtain credit. Next you need to use it and pay it back on a timely basis. It’s enough to make your head spin.

If your good credit has taken a sudden nosedive, don’t panic; there are ways to repair your credit.

Be Proactive to Keep Your Good Credit

Once you have established a good credit rating, you’ll want to keep it – even improve upon it. The only way to do that is to be proactive in how you handle your debts.

Maintain your active accounts. Credit bureaus judge your creditworthiness on the number of accounts you have open and how well you use them. You should:

  • Use your credit cards sparingly
  • Repay them as quickly as possible (preferably each month)
  • Refrain from “maxing” out (reaching your credit limit)
  • Pay more than the minimum payment each month

Know your credit history and rating. If you’ve never reviewed your credit report, do so immediately and at least once every year hereafter. Your credit report provides an overview of your current and past credit accounts, and shows whether they are active or closed and in good standing or not.

As you review your credit report, look for anything out of the ordinary – such as accounts you’ve never opened, incorrect balances, and wrong personal information.

While you are allowed one free credit report annually from each of the three credit bureaus, to obtain your credit score there is generally a small fee.

Manage your budget wisely. The only way to maintain financial solvency is to know your income and your outflow. Spending beyond your means is a sure-fire way to get into debt quickly.

To be financially strong, you should:

  • Pay cash whenever possible
  • Limit your use of credit cards to emergency situations (such as unexpected medical bills or car repairs)
  • Sign up with your employer’s 401K (if available)
  • Set up an automatic savings plan
  • Balance your checkbook regularly

Fix Your Credit if it’s Gone Bad

Unexpected things happen to people all the time. Loss of a job or loved one, an unforeseen medical bill or car repair, many things can cause you to spend beyond your means.

If you find yourself in the unfortunate position of needing to repair your credit, there are steps you can take to rectify your situation.

Reach out to your creditors. When you find you are having trouble making ends meet, contact you creditors, explain your situation, and seek their help to lower your interest rate (especially on credit cards) and work out a modified  repayment plan. If you wait until your accounts go into collections, it will be too late.

Handle debt collectors immediately. According to the Fair Debt Collection Practices Act, debt collectors cannot:

  • Call before 8:00 a.m. or after 9:00 p.m.
  • Call you at work
  • Harass, lie, or manipulate you to try and collect a debt

Additionally, debt collectors must stop further contact when requested to do so in writing. While your first inclination may be to avoid collectors at all cost, it might be wiser to be proactive and find out who they are so you can send them a cease and desist request.

Seek out debt relief, debt management, or debt settlement services. Going it alone can be tough. So if you need assistance in managing your debt, consider:

  • Credit counseling services. Make sure to investigate any credit counseling service organization carefully to ensure they are legitimate, affordable, and certified. Reliable services can offer advice on managing money and debts, help develop a budget, and offer free educational materials and workshops.
  • Debt management plan (DMP). A DMP requires that you deposit money with the credit counseling service on a monthly basis. They use your deposits to pay your unsecured debts, such as credit cards and medical bills, based on a pre-arranged schedule of payment. Creditors sometimes agree to lower interest rates based on your participation. However, it could take as much as two years to complete the plan, so be sure to ask.
  • Debt settlement program. A debt settlement program may allow you to pay off your debt quickly and for less than you owe. The company will speak to your creditors on your behalf, negotiate a settlement, and then inform you of the outcome.