Building Good Credit When It's Already Bad?

Question

Our credit is pretty bad, I know this even without viewing a credit report. Besides the obvious (pay off the debt), what's the best way to rebuild your credit. DH says that when you start paying off the debt that it starts showing good credit on your report. But how good is it really? I mean, it still shows that you haven't paid the bill in X amount of months/years, right? Can't the people that are approving you for a credit card or loan or job still see that it was unpaid for that amount of time, or no? I would think if they could that most places would still want to deny you because of it.

Answer 1

Yes, someone running your credit report will see that you had gone for a period of time not paying your bills properly. But the longer you don't pay, the worse the situation gets. There is a rule call "The 5 C's of Credit", character (integrity), capacity (sufficient cash flow to service the obligation), capital (net worth), collateral (assets to secure the debt), and conditions (of the borrower and the overall economy). By paying your bills again, you are re-establishing "Character", owing up to your debt. As long as your credit cards are not maxed out, you could look at trying to consolidate some of the bills by transferring some of your smaller balances to other cards. Some of the cards may offer a short term interest rate on the transfer, and if not, as long as the interest rates aren't that much different, it may be a short term option to consolidate some of your debt.

But let's say you can't consolidate because your cards are maxed or they won't let you because you hadn't been paying your bills. Write down all your debts from smallest to largest and next to that, list the minimum payments. Look at all the money you can pay to your debt, subtract your minimum payments beginning with your largest debt until you get to the smallest. The entire balance of what is left over, throw it to your smallest debt. Once you pay that off, you will have one less bill to pay. PLUS, all the additional money you had to pay off the smaller bill will increase since you can add the minimum payment, from the now paid bill, to that overage amount. Then continue to throw all the extra bill money to the smallest bill until they are all paid off. Paying the minimum on all and throwing the extra to the largest will just keep your finances spread out forever since most of your extra money to the largest bill is just getting eaten up by card interest. Paying off even the smallest bills will help your credit since you now have less debt and fewer bills over your head.

If, by chance, you subtract your monthly allowance to pay bills and you are coming up short to meet all the minimums...you may have to call the credit companies and work out a plan with them to minimize your payments for a short period of time. This may result in you having to freeze or cancel a card or two to get this agreement done. But, in your situation, cancelling a card or two may not be a bad thing in the long run.

Answer 2

Try to get a loan to consolidate all of the owed money. Then pay off that one loan and never be late, that will help the credit issue and pay off all the bills at the same time. Just dont create mor bills along the way.

Answer 3

1. Get a secured card. You can decide on the best one for you here: http://bankrate.com/brm/rate/cc_ratehome.asp?web=brm&state=US&prodtype=cc&R1=1&card_type=Secured&card_class=All&max_recs=50
Pay the annual fee if warranted. Only good credit gets no AF offers. You are trying to get there.
For example: If you select Bank of America, after 1 year of on time payments you get your security deposit back and you are moved to an unsecured card with a higher credit limit.

2. While you are reestablishing your credit with the secured card, visit a forum to get information on how to remove deragatory marks from your credit report. If you want more information on sites to visit, email me and I will send you the links or you can search for them on the Internet.

Save your money and do not pay an agency to help you. You can do this yourself.