Unfortunately, bad credit often happens to good people. Even though a less than desirable credit rating is costly and involves several factors, it is not impossible to overcome.
For many people, the first step to improving your credit rating is knowing what it is, and understanding how it became negative in the first place. The Fair and Accurate Credit Transactions Act of 2003 entitles you to a free credit report from each major credit bureau once a year. You can order your credit report online from annualcreditreport.com. For the most detailed explanations on your FICO scores, go to the credit education area at myfico.com.
Most negative information can appear in your credit report for seven years. This includes lawsuits, judgments against you, paid tax liens, accounts sent to collection, criminal records, late payments, and overdue child support. Bankruptcies can stay in your credit report for up to ten years.
Credit scores below 620 are generally considered sub-prime, at least in the mortgage world. Of course, this definition changes all the time. But, if you are below 620, it is time to do something about it.
Creditors like to see evidence of stability, so if any of the following information is not in your report, send it to the bureaus and ask that it be added: your current employment, your previous employment (especially if you’ve been at your current job fewer than two years), your current residence, your telephone number (especially if it’s unlisted), your date of birth, and your checking account number. Again, the credit bureau doesn’t have to add these, but often will.
If you don’t have a credit card, apply for one. If your application is rejected, try to find a cosigner or apply for a secured card — one issued after you deposit some money into a savings account, against which you can charge purchases.
Creditors like to see evidence in your credit report that you have a history of paying off credit on time. If you have a credit card, use it every month. Make small purchases and pay them off to avoid interest charges. But, as always during challenging times, be sure to spend within your means.
Ideally, you should carry one or two financial institution credit cards, maybe one department store card, and one gasoline card. Creditors want to see that you can handle more than one credit account at a time. But use all of the cards only if you can pay the charges in full each month — don’t build up interest charges.
It usually takes about two years to rebuild your credit so that you won’t be turned down for a major credit card or loan. After four years or so, you should be able to qualify for a mortgage. So, be patient, and stick to your plan. And, remember, CoastHills offers free credit counseling services, so don’t be afraid to ask us for help.
