Credit Basics: Repair Your Credit

By StudentPlatinum.com

What can you do if your credit is currently less than stellar? 

Well, as you can imagine, there are many ways to handle bad credit and there will be no shortage of companies looking to sell you easy solutions to do it for you. Before you buy into any of them you should realize that there’s only one way to truly turn things around and that is with some soul searching, a little behavior modification, and a lot of hard work. Whether you work with an agency or not, some are good and others are crooks, everybody should try the following steps first.

First get your credit report and your credit score to find out exactly where you stand. If you have recently been rejected for a loan or line of credit and have been told that your credit report was a contributing factor, you are entitled to a copy of the report from the lender that denied you. Ask for a copy so that you can see what’s going on.  But for now, let’s assume that you have a copy of your credit report and you are less than thrilled with some of the information on it.

Thoroughly comb through all of the information on the report and identify anything that you think is incorrect. This can include unfamiliar accounts, late payment indications, past due accounts, etc. You have the right to dispute any information in your credit report that is not correct! In fact, it’s Imperative that you do this immediately as the items are most likely a large contributing factor to your low FICO credit score! Your report should list instructions as to how to dispute data. If not, send a letter to the credit bureau who gave you the report detailing the inaccurate information.

It is now time to implement a Debt Repayment Plan. We’ve put a detailed plan together for you called the Student Credit Card Debt Reduction Plan. Below is a summary.

1. It is human nature to be overwhelmed when you are in debt. The first rule is don’t panic. No snap decision is going to lead to anything good. You didn’t get into this position overnight and you won’t get out of it overnight. But the sooner you get things rolling forward the quicker you’ll feel better.
2. Start with a simple budget. We have provided one you can download here but all you really need to do is have a list of all your money coming in and money going out so you can take an honest look at the resources you have to work with.
3. Next figure out which accounts you should pay, in what order, and how much.
4. On paper, list each creditor, total amount owed, monthly payment, and interest rate.
5. Define the order in which you will pay the list of creditors.
6. List any “past due” accounts first, as they are categorized in the “payment history” bucket which makes up the lion’s share (35%) of your FICO score. Your goal should be to fix these issues so that the “past due” accounts are reclassified to “current’ or “paid”.
7. List any “maxed out” accounts next so that you can get them below the limit ASAP.  Remember, your credit utilization makes up 30% of your credit score, not to mention that the “over the limit” fees must be draining you!
8. Finally, rank the remaining debts in descending order from highest interest rate or, if your high interest debts also have high balances, you may want to balance your payments with your lower interest debts to get them paid off quicker, freeing up more available credit in multiple places.
9. Determine how much money you actually have to pay these creditors each month.  To get this number, list all of your monthly income (wages, child support, dividends, etc.) and subtract all of your required monthly expenses (rent or mortgage, utilities, food, transportation, medical expenses, and your minimal debt payments).  This equation will result in your disposable income, which is where you hopefully find some extra money!  Here’s where the soul searching creeps in…you will need to truly scrutinize your need for cable TV, Internet access, hitting Starbuck’s on a daily basis, long weekends in Vegas and any other “extras” that you may currently incorporate into the “gotta have or die”  category.  Just periodically remind yourself of how good it will feel to get out from underneath your heavy debt to actually enjoy your latte with a peaceful mind.  It can be done!
10. Put your plan into action.  With your disposable income defined, you can now assign a repayment schedule to each of the debts that you listed.  Once you assign the payment (in addition to the minimum due) that you will make to each creditor on a monthly basis, you will be able to mark on a calendar when you will be in the black again!  VERY IMPORTANT:  REFRAIN FROM USING CREDIT CARDS DURING THIS CLEANUP PROCESS!