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How to Fix Bad Credit and Gain Good Credit Score


Have you recently applied for a loan and been denied?  Were you told that your credit was too low to qualify for a loan?  Whether you were declined for a car loan, home loan or even a credit card, being told you don’t qualify can be a painful blow to your ego, not to mention an inconvenience.

A car is a necessity in many areas of the country to get you to work and school, yet if you don’t qualify for a loan and don’t have the cash to pay upfront for a car, how are you to get to work to make money?

good credit score
good credit score

Even if you do qualify but you have low credit, you may have to pay outlandish interest rates.  In contrast, if you have a good credit score, you will not only qualify for a loan, but for some of the best interest rates available.  Clearly, taking the time to fix bad credit is important.

Slowly Repair Your Credit

While fixing bad credit is not a quick process, it can be done.  First, order a copy of your credit report from annualcreditreport.com and verify that all information on the report is correct.

If you find incorrect information, you will need to provide documentation to prove it is incorrect and send a letter to the credit bureau that is misreporting the information as well as the company the debt originated from.  The credit bureau should have the record fixed within 60 days. If you find and fix several errors, your credit score should improve.

After you have taken this basic step, the next step to fix bad credit is to use credit responsibly.  If you qualify for a small card such as a department store credit card with a low limit such as $250 to $500, you may want to take out the credit card and use it once or twice a month, taking care to pay off the card each month and to pay on time.  Likewise, you should be paying all of your regular bills such as your rent and utilities on time.

Get Expert to Fix For You

Alternatively, if you have a busy schedule, you may want to hire a company to fix your credit.  These companies often charge a fee after they have begun working on your case.  Never work with a credit repair company if they require money upfront.

When you have collection accounts on your credit reports, especially if you have numerous ones on there, it may be smart to hire a credit repair company to help you out.

They may be able to work to have these collection accounts and other negative items removed from your credit reports, which of course could make great improvements to your credit scores.

While you have to do your research to make sure you sign up with a reputable credit repair company, the benefit is that they may be able to improve your credit more quickly than if you did it on your own.

Repairing bad credit can help you not only qualify for loans but, if you are able to improve your credit score enough, help you to qualify for lower interest rates. There are many credit fixing companies out there to help with this.

Over the course of your lifetime, utilizing loans with low interest rates can save you tens of thousands of dollars.  This is especially true if you qualify for a low interest rate when making the biggest purchase of your life–a home.  While repairing your credit can be a slow, tedious process, it is a worthwhile investment of your time.

Guide To Deal With Collection Accounts On Credit Report

Collection accounts are very common for anyone with less than perfect credit. Many of us have fallen into hard times with our finances. With the stresses on the economy, we lost our job or had a business fail.

Some of us had an unexpected illness, or we went through a divorce that took a toll on our personal finances. And for a few of us, we just didn’t learn soon enough how to properly manage our finances until after we ended up learning from the experience of making a few financial mistakes.

With many of the more common financial setbacks, many of us have seen collection accounts showing up on our credit reports. But we also don’t feel we deserve to live with ruined credit forever just because of a few hardships that we were forced to face.

Luckily, even if you have collection accounts on your credit reports, there are things you can do.

Here are 5 ways to deal with collection accounts on your credit reports:

1. Check the dates

Just because collection accounts are supposed to be removed from your credit reports after 7 years, that doesn’t mean that they always are. Many people have collection accounts showing up on their credit reports that are over 7 years old. It may just be a matter of informing the credit bureaus that the accounts are old.

So, order copies of your credit reports, check the dates on all of them, and if there are any accounts on there over 7 years old, let the credit bureaus know, and ask them to remove them. This could significantly improve your credit scores.

2. Check the numbers

Sometimes collection agencies will try to tack on their own extra fees to the original amount of the debt. Unless it specifically states otherwise in your original agreement, it is not legal for them to do this. So, always try to keep updated records of all of the debts you owe.

When you look at your credit reports, if you see balances that are higher than what you have in your records, chances might be that the collection agency is trying to pad their numbers a little bit and collect from you more than you actually owe.

The good news for you? If you can prove that they are reporting higher amounts than you owe (if you have documentation that shows the actual amount you owed to the original creditor), then they will be penalized and they will no longer be able to perform collection proceedings against you.

3. Check the ownership

There is a lot of selling, reselling, and shuffling around when it comes to collection accounts. After trying to collect your debt from you for a while, your creditor will sell your account to a collection agency.

That collection agency will attempt to collect the debt for a while, and if they aren’t able to achieve any results, they will then sell your debt to another collection agency. After this has been done for several times, many of the details and information can be jumbled or lost completely.

In many instances, a collection agency might not have the correct paper trail to prove that they have ownership over your debt. If you see that a collection account has switched hands several times, you may want to contact the current collection agency and ask them to verify that they own the debt.

If they are not able to provide the proper verification, then they must stop any collection proceedings, and those negative items may be able to be removed from your credit reports.

4. Settle it

Sometimes you may have no way of stopping collection proceedings. But in most cases, you may be able to settle with the collection agency for a smaller amount than what you actually owe.

At this point, many collection agencies have given up a lot of the hope of actually being able to collect on the debt.

But that, of course, doesn’t stop them from trying. So if you offer to settle the debt by paying it off in one lump sum, many times they will be willing to accept much less than you owe.

Many people are able to get the collection agencies to settle for up to even 70% less than what they owe on the debt. These collection agencies are just happy to be able to get something out of this debt, especially if they can get it all at one time (instead of in small installment payments).

Rebuild Positive Credit Rating And Better Manage Debt

Many of us begin our financial lives knowing less about managing money than we should. A few people receive limited training in high school. The result is we may find ourselves in trouble and get into debt. Building a good credit record is easier than rebuilding damaged credit. Here is one plan for building good credit.

Know How Much You Earn

Determine your total gross annual income. Divide by twelve to arrive at a monthly amount. Some work is seasonal, resulting in overtime that is not always available. Some involve an annual hiatus of several weeks, while other jobs are commission dependent.

Your expenditures must equal your average monthly income. If you have a fluctuating income, do your best to estimate how much you average will be per month and change that as often as needed. Knowing exactly how much you make is the first step in managing your finances better.

Know What You Spend on Non-discretionary Items

This category includes rent or mortgage, utilities, insurance, and monthly health care. It includes prescription medicines and payments to medical providers. Health insurance is non-discretionary.

Your goal is to bring these to around 40% or less of your income. Whatever amount you set, make this a firm goal. Your credit may be damaged if amounts due end up in collections.

Control Discretionary Spending

These are amounts over which you have control. You must budget for savings, food, clothing, personal items, transportation, and entertainment, all of which must be included. It’s possible to make changes to this as needed, since it may take some to get exactly where you want.

Debt Repayment: Know How Much You Owe

These are the amount which you have control. The best way to rid yourself of this category is to pay debts off on a scheduled plan. This is the amount left over after all the above expenses are managed. This part most affects your credit score. List your debts in order of smallest to largest.

Pay minimum payments on all except the smallest. Pay it off. Repeat until it is paid in full. Move to the next debt. Apply the payment you were paying for the smallest debt, plus the amount due on this one.

Continue until it is paid in full, and repeat until you have paid off all credit debt. If necessary, negotiate for lower payments where you can. This gives you a sense of power over your bills and immediately improves your credit score.

Get Help

Professional consumer credit agencies can help you gain control of your credit. If you don’t know where to start or feel overwhelmed with your debt, seek credit counseling to get started on taking control of your finances again.

With these tips, your greatest savings will come with your stress relief. Debt can cause serious stress and problems with families if not taken care of. Knowing how to keep a budget and improve your credit score are just a few must-haves to stay debt-free.

Is ARM Loan Suit For People With Bad Credit Scores?

With the US government becoming more stringent about granting home loans to customers, people across the country are looking for more suitable and easier options to take home loans.

While deciding on opting for a home mortgage, one of the most crucial aspects to be considered apart from a fixed rate loan is the ARM or Adjustable Rate Mortgage loan. In this kind of loan, the starting rate of the payment is fixed for a certain amount of time.

When the mentioned time period ends, the rate can be adjusted depending on the pre-determined index and margin. The period for this kind of loan can range from 1 to 10 years.  The adjusted results on these mortgages are usually a reflection of the principal taken and the rate of interest.

This particular type of loan became almost obsolete during the real estate melt-down just a few years ago. Due to the tendency of such loans needing higher interest rate payments, most people tried not to opt for it during that time. However, as the fixed rates keep going up once again, ARM has arrived as an additional source of financial help for borrowers.

The Risks

The risk with ARM is that after the initial payment is made over a certain period of time, the rate can climb up rapidly making it quite difficult for the borrower to bear the charges. In some cases, the ARM amount can climb up to 6% during the 30-year term.

In comparison with ARM loans, interest on fixed mortgage remains the same and that is why the borrower can make clear calculations while planning the payments. This kind of loan is particularly favored by sub-prime lenders.

Persons having a bad credit report usually have difficulties in getting their loans approved from banks and other such institutions. Even if they do, the rate of interest in their case is bound to be higher than a person with a good credit score.

ARM can be an ideal solution for people like these who are looking to minimize the interest rate while buying any property.

The options

However, risks continue to remain in such cases as well. While the terms for payment remains low during the first few years, the rates can go up suddenly once the mentioned period is over. The options then left for the borrower are limited.

He or she either has to refinance a loan or sell their home to prepare themselves for making the mortgage payments.

In most cases, option one has been the toughest one to carry out and that is why people have been forced to opt for option two or three. The general trend in the US shows that most people have opted for option three mostly by force if not by choice.

Using ARM tactically

The ideal thing to do while opting for an ARM loan is to sell the property within the period in which the loan rate remains the same. Say, for example, a person opts for ARM with an interest rate that remains fixed for five years.

The ideal option for him or her would then be to sell the house within the period when the interest rate remains unchanged. Then sell the house and move to another place.

In the end, thus, it can be said that ARM loans can be an ideal option in case you know how to use them well. If not, it’s better to avoid it than being burdened by additional costs.

What Happens to a Credit Score After Foreclosure?

A foreclosure occurs after a borrower defaults on a mortgage. Whether due to job loss, health problems or financial emergencies, sometimes a foreclosure is inevitable. Unfortunately, the aftermath of a foreclosure affects more than just where you live. It also negatively impacts your credit score and will do so for many years to come.

foreclosure
foreclosure

Credit Scores

FICO credit scores range from 300 up to 850. The higher your FICO score, the more likely lenders will see you as a good credit risk. According to FICO, three factors influence credit score calculations.

Your payment history accounts for 35%, which is the largest factor in the calculations. The amount of debt you owe accounts for 30%. The length of your credit history, types of debt and new credit applications make up the rest.

A foreclosure affects the first two factors and is, in fact, one of the worst things than can happen to an individual`s credit score. Only bankruptcy has a more negative impact on credit scores.

Effects of a Foreclosure

Your credit score will definitely take a hit after a foreclosure, typically anywhere between 85 and 160 points, according to the FICO website. You can expect that it will take at least seven years for your score to fully recover.

A foreclosure lets lenders know that you have defaulted on a loan and should be considered a bad credit risk. This makes various transactions more expensive. You will likely end up paying much higher interest rates on credit cards and loans. It could also hike up your home and auto insurance rates.

A foreclosure might even make it more difficult to find a job or rent an apartment. Both potential employers and landlords frequently use FICO credit scores to weed out undesirable applicants.

Rebuilding Credit Scores After a Foreclosure

Rebuilding your credit scores after a foreclosure can be a long process, but you can boost your ratings if you use credit wisely. Continue to use your existing lines of credit, but be sure to make all of your payments on time and in full. Paying off outstanding balances also has a good effect on your credit ratings.

If you don`t have existing lines of credit, then apply for just one or two. The interest rates will be high, so you must make your payments on time and in full. Avoid borrowing or charging more than you can realistically afford.

Alternatives to Foreclosure

If you`ve fallen behind on your mortgage payments or are currently struggling to make them on time, there are several options you can take to help stave off foreclosure and maintain a better credit score.

Contact your lender and explain your financial situation. Ask about any applicable refinancing options, new repayment plans or loan modification programs. The sooner you contact your lender, the more your lender might help you.

Many people facing foreclosure turn to the professionals to get a bit of debt relief, such as the people at National Debt Relief Plan. These professionals help you negotiate reduced balances with your creditors and set up arrangements whereby you can make a single affordable monthly payment rather than several larger ones.

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