Credit Repair

How to move from rejection to approval.

To Approval Bad credit can make life difficult. It can prevent you from buying a car, a house or even obtaining the proper amount of life insurance you need to protect your family. Perhaps the most discouraging way to find out you have bad credit is being rejected for a loan. Your credit may be in such disarray that it could take several years to repair it. Fortunately, credit repair is not an impossible task. When a company-whether a bank or department store-determines your creditworthiness, it calls upon one of several credit bureaus to look at your credit report. These bureaus collect and sell financial information about anyone who has applied for a credit card, a personal loan or insurance. The information on these reports includes:

Payment history:

Any account you hold or have held in the past will be listed here, as well as the amount of credit you currently have and your payment history.


Credit bureaus also keep a record of all inquiries into your credit during the previous year from other creditors. Frequent applications for credit do not look good to lenders.

Public record information:

Tax liens, bankruptcies and foreclosures, which are matters of public record, will also appear in your report. Once your credit is damaged, it can follow you around for quite some time. Bankruptcy information may be reported for 10 years, according to the Federal trade Commission. Information about a lawsuit or unpaid judgement can be reported for seven years. The same is true for default information on U.S. Government-insured loans (FHA, FMHA, etc.) or guaranteed student loans. Nevertheless, time is truly the healer of financial wounds. Even if you have accurate negative information on your report, a recent record of good fiscal habits can lessen the damage of your past. If you're having a tough time with debt, here are some tips to get you started on the road to financial health.

Develop A Budget

This is as simple as sitting down with all your monthly credit statements and pay stubs, then writing down how much income you have versus how much you're spending. Prioritize your list with required payments at the top, such as housing costs, insurance, car payments, etc. Then write down the extras--entertainment, recreation, clothing, etc. Once you know what's coming in and how much is going out, you can start trimming down the budget and reducing debt.

Contact Your Creditors

After you've set up a budget, if you find you're still running in the red, call your creditors and let them know you're having difficulty making ends meet. Explain your circumstances and y to work out a budget plan that works for them and you. Make this move now. Don't wait until you receive a call from a collection agency to work out a payment arrangement with your creditor. By then, it's often too late.

Credit Counselling

If you need help sticking to a budget, you may want to consider credit counselling. Credit counselling service providers can work as a liaison between you and your creditors to work out a payment plan to get you out of debt. In some cases, the counselling agency can even lobby for you to have some interest and penalties waived. Usually, you must discontinue use of any credit cards and agree not to seek out any more credit until your debts are paid. Not all creditors will agree to the plan, so you need to be ready to continue paying them apart from your counselling agency's repayment plan. Although a repayment plan may relieve some of the stress that comes with financial difficulties, it doesn't erase your negative credit history. The fact that you're using a credit counsellor may be noted in your credit report. Throughout all this rearranging keep in mind your goal is debt reduction and credit repair.

Debt Consolidation

Through debt consolidation, you may at least be able to reduce your cost of credit. Your debt balance will remain the same, but you may pay less in interest charges each month. Debt consolidation can be achieved by applying for lower-interest-rate credit cards, or by taking a second mortgage or obtaining a home equity loan. Be careful here, however, as two things can happen. If you fall behind on your payments for the home equity loan, you could lose your house. In addition, with all your credit cards paid off, you now could encounter the same problem as before if you apply for more credit cards. Debt consolidation works if the process rearranges your old debt while helping you create new credit habits.