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Rebuilding Credit: The Basics

Since I’m in the process of rebuilding my credit, I thought I’d walk you through some of the steps I’m taking to meet my credit goals.

Please understand that there is no “quick fix” for your credit. Your credit report is created based on your use of money, whether responsibly or irresponsibly. You can, however, put in extra effort by disputing incorrect or out-of-date items on your report, paying off debts, and acquiring one or two new trade lines where you may be lacking. To the rest, I’ll say, “Time heals all wounds.”

My Credit History

Historically, I’ve had dismal credit, but I was able to build it back up to excellent credit with a credit score of over 750. Realistically, I see myself doing that again, because I know it just takes a little time and organization, and I’m not starting from the bottom. My scores range from poor to fair, so I have a bit of a head start.

In the last 5 years or so, I’ve had some derogatory marks added to my reports. I’ve also not had any credit cards, BUT I also have no debts (which is good and bad). This is a big reason my credit is lacking, because this affects my “credit history”, which is an important factor in deciding my credit score, but there are deciding factors. According to FICO, these are the top 5 to consider, in order of importance:

  • (35%) Payment History – Paying your accounts on time (collections, late payments, etc.).
  • (30%) Amount Owed – Combines debt, credit utilization, and number of accounts.
  • (15%) Credit History – Age of accounts and how often you use them.
  • (10%) Credit Mix – Types of accounts (installment, revolving, mortgage, etc)
  • (10%) New Credit – Don’t open too many accounts in a short amount of time.

These topics cover many more details that you can find on the Fico Website, but essentially, they will be the most important to you. I would like to add that too many hard inquiries may have a mild negative impact, and public records may have a significant negative effect on your credit score. Public records include liens, judgment, and bankruptcies.

Where to Start When Rebuilding

The first thing you’ll want to do is get your hands on all three of your credit reports and scores, if you don’t already have current copies. You can get all three reports (no scores) through annualcreditreport.com for free, every 12 months, or you can order them directly through the credit bureaus’ websites. Experian offers all three reports with scores for 39.95. Or there are many credit monitoring sites that you can pay a small monthly fee and get updated information monthly on all changes to your report..

DEBTS: If you have unpaid balances, charge-offs, and/or are in collections. This will continue to be a derogatory mark on your credit report. This is absolutely step #1 in improving credit. ALL DEBTS MUST BE PAID, or settled with a $0.00 balance. If they’re not, stop here, and get a plan together today.

Once you have your reports, look over them for inaccuracies. If you find that you may need to dispute inaccuracies or out-dated information, simply dispute the information with the credit bureaus directly. This is the first thing you want to do – clean it up and make sure everything is accurate and updated. The information reported will vary from one credit report to the next, so be thorough.

Next, you’ll want to set some credit goals, and to do that, you need to locate the part of your report that talks about why your score is low. It will usually be titled something like “understanding your score” or “factors affecting your score”. This will let you know what is hurting your credit and what you can do to improve it. Some things will not be able to change. For example, one of mine is “insufficient information on a mortgage account”, which I can’t do anything about since it’s an old (and closed) account. A different bureau has no items to display for me to improve on, which sounds great, but leaves me feeling lost with a mediocre score. What this tells me is there is nothing hurting my score, but I definitely need to still build up my credit responsibly. <— my new goal!

New Revolving Credit Tradelines

Once any disputes are completed to your satisfaction and you have your goals in mind, it’s time to take action. For me, since having no revolving credit was hurting me, I decided to get a secured card through Discover for $500 and only use it at a 10-15% debt-to-credit ratio, meaning I never charge more than $50-$75 on it each month, and pay it off completely and on time. After six months, I can be reevaluated for a larger credit line. After one year, I may qualify for an unsecured card with them based on my payment history. This is a great way to be smart about revolving credit while giving your credit score a lift!

And, I did a lot of research before choosing Discover to help build my credit. Not only are there the above-mentioned features, but I also earn 1% cash back and get to view my FICO score for free through their partnership with TransUnion. It’s a win-win for all involved.

Whatever you do, don’t apply for multiple revolving accounts in a short period of time, as this appears as though you need credit. I only applied for one secured card and will wait 6 months before considering any other revolving accounts. Generally speaking, new accounts may temporarily show negatively on your credit report until around 90 days of on-time payments.

Installment Loans

I was already in the market for a “new” used car for my oldest daughter, and it occurred to me that this may be an opportunity to help build my credit by financing. At first, I was concerned that my credit may not allow the financing, but I soon learned that “fair” scores are considered “good” in a car dealership.

I got a 7.24% interest rate, which isn’t awful, but that’s not really the point. The point is the bank will make a little money off of me, and in return, I will use them to build up my credit. Another win-win!

I didn’t want to be in debt with this purchase or pay massive interest, so I saved up the money in advance and put it in a separate savings account. I put a nice  down payment on it (banks like to know you have cash to put down), and was able to finance the rest over 48 months. Of course, I’ll be paying it off in less than a year without penalty, but don’t tell the financing company!

The Bottom Line

I don’t believe credit is essential to life, but it’s definitely essential to qualifying for a mortgage. Most other things you can reasonably save up for, even a used car. Only buy what you can truly afford, even if you finance it, and pay on time, every time.

Everyone makes mistakes, even with credit, or especially with credit, but it can be re over time, and with a little patience and forethought.

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Consumer Debt Help Association Moved To New Location

Consumer Debt Help Association has been operating out of the Delray Office since the company was formed in 2009. Unfortunately at that time with a new business renting was the only option. Since the company is such an established business now, and growing, almost ten years later, we were fortunate enough to purchase a building in the neighboring town of Lantana to make our permanent home. Please send all correspondence to this new address moving forward. Thank you for your trust and we will continue to work our hardest to obtain the lowest settlements possible for you and to get you out of debt is the shortest amount time that we can.

 

New Address –

Consumer Debt Help Association

516 N. Dixie Hwy

Lantana, FL 33462

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How Long Does It Really Take to Improve Your Credit?

I was recently looking through last year’s check registers for confirmation of a payment I had made when I noticed my handwriting on several pages looked odd. It took me a moment to realize why: at the time, my right hand was in a cast and I had been writing with my left.

I remembered how grueling that month felt. Just about everything I did was more difficult and time-consuming, and I just couldn’t wait for the day until I got my cast off. In time, my hand healed. And although it had happened just a year before, it now felt like a distant memory.

Time can help heal your credit, too. The mistakes you’ve made, or the financial troubles you’ve experienced, may be terribly painful right now. They may feel all-consuming. You may be frustrated, angry or just plain worn out. And you may feel like you’ll never have good credit again. But eventually, those memories can fade, too.

Here are three ways time can help heal your credit.

Some Information Disappears

After a certain period of time, negative information can no longer be reported. Generally, that time period is about seven years with these caveats:

  • Collection accounts or charge-offs can be reported for seven years plus 180 days from the original date of delinquency (usually the date you failed to make your payment to the original creditor, resulting in the account eventually being charged off and/or sent to collections).
  • Paid tax liens may be reported for seven years from the date of payment.
  • Judgments may be reported for seven years or until the statute of limitations has expired, whichever is longer.
  • Bankruptcies may be reported for 10 years, though the credit reporting agencies will remove completed Chapter 13 cases seven years after the filing date.

As long as the dates reported for the negative items on your credit reports are correct, you probably won’t have to do a thing to make them disappear. They will automatically be removed, and once they are, it will be as if they didn’t exist. They can no longer impact your credit scores.

In The Meantime, It’s Old News

No matter how annoying it may be to see negative information every time you get your credit reports, keep in mind that this information often has less impact on your credit scores over time.

“An awful lot of people assume that because information stays on a credit report for seven years … all that data is equally important all the way through the seven years,” says Barrett Burns, CEO Of VantageScore. But that perception is generally wrong. “As data gets older it slowly loses predictive value,” he says. In other words, it will likely have less of an impact on your scores over time.

In fact, VantageScore crunched the numbers to help illustrate the impact, over time, of various actions on credit reports. For example, a missed payment could cause a VantageScore credit score to drop by 50%, but it could recover in about a year and a half. (The impact won’t be the same for everyone, though. It will depend on the contents of their credit reports. Often someone with a higher credit score will see a larger drop when negative information appears on their reports, compared to someone with a lower score.)

In other words, that credit card payment you missed five years ago may seem like a bigger deal to you than it really is.

In 2011, FICO published estimates of how long it would take FICO credit scores to recover from mortgage-related problems and found that “In general, the higher (the) starting score, the longer it takes for the score to fully recover.”

For example, it would take an estimated nine months for a consumer with a starting FICO score of 680 to bounce back from the impact of a 30-day late mortgage payment, while it would take an estimated 2.5 years for someone with a starting FICO score of 720 to recover. Someone whose FICO score was 780 when they missed that payment could take three years to get back to where they were.

You Build Experience

One of the five major factors that make up your credit scores is the age of your accounts. Here, you get “credit” so to speak, for having experience with credit. This factor looks at the average age of all your accounts as well as the age of your oldest account. And time is your friend. The longer you’ve had your accounts, the better you can score for this factor.

There is a caveat here, too, however. If all the information on your report is negative, then when it’s no longer reported you’ll start all over again. That’s why even if you have been through bankruptcy, it can be a good idea to (cautiously) get back in the saddle again and establish a positive credit reference, even if it’s with a low-limit secured credit card. Otherwise, when your negative accounts are no longer reported, you could find yourself with little or no credit history.

How to Make Time Your Friend

Burns says that in providing data about how time affects credit scores, VantageScore wants to “give people hope that they can get back on their feet in a reasonable period of time and to give them a path to get there.” So how can you take advantage of Father Time?

  • Know what you’re dealing with. Good or bad, you need to know what’s on your credit reports. Get your free annual credit reports at AnnualCreditReport.com and check dates carefully. And get your credit scores for free, which you can do on Credit.com so you can monitor your progress over time.
  • Focus on what matters. An old late payment may not have the impact you think it does. Catching up on an account that you recently fell behind on, or even paying down high credit card balances, might have more positive impact on your scores.
  • Apply for new credit judiciously. Remember, new accounts affect the average age of your credit history.
  • Head in the right direction. Going forward, set up auto-pay or payment reminders so that you don’t miss a payment and see your scores drop again.

Christina Goethe, director of communications for FICO, sums it up this way: “Raising your FICO scores after a poor mark on your report or building credit for the first time will take patience and discipline, but it can be done. The best way to get there is for an individual to consistently pay their bills on time, to keep their overall debt as low as possible and judiciously apply for new credit.”

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Learn to Control Your Spending Using These 11 Tips and Tricks

We all have them.Those bad spending habits that break the budget on a monthly basis.Maybe you always have to have the most up-to-date electronic gadget.It could be that you always purchase something that’s on sale, even if it’s not budgeted for.Whatever it is, you know it’s a problem.If you’ve created your income statement/budget form, you’re probably finally getting to see the dollar figures associated with your overspending.

Just know that what some people might see as overspending, could be right in line with you and your budget. You can’t always go by those financial rules of thumb you hear about.In other words, if you consistently cut back on spending in other categories so that you can dine out four times a week, more power to you.

You’ve identified what’s important to you and made it happen by being frugal in other areas.

If your budget is still functioning properly and you’re meeting all of your goals, overspending in that category isn’t a problem for you. Don’t let anyone tell you it is.

But what if that isn’t the case?

What if you only want to spend $50 a month dining out, but end up spending $250?

You may be looking at a bad spending habit and it’s time to face the problem and battle it until you get it under control.As you already know, it’s stopping you from saving money or even worse, causing you to pile on debt. That’s probably not your goal.

Get started working on those bad spending habits today by using these tips and tricks.

How to Control Spending

-Take Only The Cash You Need

Heading to the grocery store for your weekly shopping? Only take the cash you need based on what you’ve budgeted.

So if you’ve budgeted $100 for groceries, hit up the ATM and get $100 cash out. Throw that $100 in your wallet and leave all of your credit and debit cards at home.

Yeah, you read that right. LEAVE YOUR DEBIT AND CREDIT CARDS AT HOME!

Why? Well, think about it this way.

If you take $100 in cash to the grocery store because that’s what you’ve budgeted, what happens when you get to the checkout and find out that your bill is $120?

You’re going to whip out your debit or credit card to pay for the difference, right?

You’re not going to put $20 of merchandise back at that point. How embarrassing!

But if you leave your debit and credit card at home, I guarantee that you’re going to grab your calculator and add up everything in your cart as you put it in.

If you find out that you’re over your $100 budget, you’ll start prioritizing the items in your cart and putting things back.

With ONLY the cash to work with, you have not other option but to make it work. There isn’t an out.

-Know Your Spending Triggers

How did you feel the last time you had a budgeting breakdown?

Were you upset over something? Were you bored?

Start tracking how you feel when you splurge on a specific item.

For example, if you buy a soda every day at 2:00 PM, write down how you were feeling.

Maybe you were bored. Maybe you ran out of things to do.

By identifying the underlying issue, you may be able to find ways to avoid the expense altogether.

Personally, I’ve started taking a short walk to handle my typical “afternoon snack syndrome”.

When I have the craving, I just get up and go.

Find out what your trigger is, and make adjustments to ensure you deal with it in a more budget-friendly manner.

-Visualize the Prize

There are huge advantages to setting financial goals.

Once you create them, put them in a prominent place so you have to look at them each and every day.

This will continually remind you of WHY you are cutting back on expenses and/or sacrificing some things that are difficult.

If the list isn’t enough, add a picture of something you’re striving to achieve.

Looking to buy a house? Print off a picture of something you like in your neighborhood and tape it on the refrigerator.

Want to be able to pay for your kid’s college expenses one day? Photoshop a picture of them with a graduation cap and place it in your wallet in front of your credit cards. That way you’ll always have to look at it before making a purchase.

-Leave and Come Back

If you’re looking to make a purchase, force yourself to think about it.

Put the item back and only come back to it after you have had time to let it sink in.

Some people have suggested 24 hours while others suggest even 30 days if it’s over a certain amount.

I actually recommend doing a “walk-through” before making purchases. This entails taking no cash or debit/credit with you when shopping.

Since you have no way to spend, you can truly weigh the costs and benefits of a purchase.

If it’s something that can truly fit in your budget, only after you think it through should you consider buying.

-Shop With a List

What happens when you go to the grocery store for milk because it ran out mid-week?

I bet you come out with a rotisserie chicken, macaroni and cheese, grapes that were on sale, and several other items.

Does that sound like your life?

When you go shopping without a list, it’s really easy to go crazy.

So before entering the store, you need to write down the things you need and stick only to that list when shopping.

Have a plan.

If you have trouble sticking to a list, find someone who can.

Send your spouse who follows instructions with great detail.

Send your teenage daughter whom you’ve trained well.

-Know Your Weaknesses and Avoid Them

When you go to the mall, do you always end up spending way more than anticipated?

Maybe you went to meet a friend for a smoothie, but ended up buying some shoes, a nice new jacket, a soft pretzel, an ice cream cone and to top it off, you had your eyebrows threaded.

That’s definitely NOT what you went in there for.

So if your weakness is the mall, avoid it at all costs.

Why put yourself through that?

I’m not saying that your weakness is the mall. Heck, yours could be the cheese deli at the grocery store for all I know.

Just know what makes you weak in the knees and stay away.

-Tell Your Family and Friends

If you’re trying to avoid your weaknesses, letting your family and friends know is a good idea.

Trust me, trying to avoid the mall and having your friends want to go there all the time makes things tricky.

It’s even more difficult if you’re watching them spend money.

Having a quick conversation with them about your issue is no big deal. You can even phrase it to look like you’re being responsible.

Try this:

Hey Jane. Do you mind if we start hanging out at my house instead of the mall? I’m trying to save for my kitchen remodel and you know how I get at the mall! 

Pretty easy right?

If they’re truly your friend, they’ll understand and support your decision.

-Inventory What You Own

Have you ever gone to the grocery store, bought something and then discovered that you already had it in the pantry at home?

Yeah, it happens.

Take an inventory of the items you already own to ensure you’re not duplicating purchases.

A good tip is to take a picture of the contents of your refrigerator and pantry before heading to the store. Not sure if you are out of ketchup? Check the picture!

You should also keep a running inventory of the fresh stuff in your refrigerator.

Use a site like Still Tasty or Eat By Date to create a list of the fresh items you have so that you can make sure you eat everything before it goes bad.

So if you’re trying to figure out what to cook for dinner, you can check the list to see if there’s something you need to use ASAP before you can no longer eat it.

If you struggle with trying to figure out what to cook based on what you already have, try a website like Supercook.

Supercook is a recipe aggregator that searches multiple recipe sites to help you create a recipe based on the items you have in stock.

-Place Reminders In Your Wallet

When trying to control your spending, you need to realize that you’re creating new habits.

So in the initial stages of making a change, bombard yourself with reminders.

For starters, try taping reminders on your debit/credit cards.

Take a piece of paper, put the phrase “Do I Really NEED This?” on it, and then tape it to your credit and/or debit cards.

I guarantee it will make you second guess the impulse purchase you’re about to make.

It’s also a little embarrassing if you have to hand it to the cashier. They might ask you if you really need it. :-­)

-Reward Yourself

Start rewarding yourself for a job well done.

Every time you find yourself not spending where you would have in the past, take 10% of the money you would have spent and put it in a jar.

After a few weeks, take that money and spend it on whatever you want.

It’s something to look forward to!

-Budget In The “Fun Money”

Fun money is defined as guilt-free spending.

When you create your budget each month, be sure to budget for “fun money” and then spend it on whatever you like.

You could even use the money from tip #10 as your “fun money”!

This process will help because you’ll realize that you can still spend money on things, but you just need to limit your spending so you can meet your other goals.

Take Baby Steps

Let me start off by saying from personal experience; you’re not going to change your bad spending habits overnight.

Just as it took you several months or even years to create the habits, it’s going to take a little while to break them.

So, if you’re trying to go from spending $800 on groceries per month to $400, don’t be discouraged if you spend $750 in that first month after making changes.

There’s no way you can make that drastic of a change that quickly.

Even a slight change in your habits can have a lasting effect.

Slow and steady will win this race.

Good luck!

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10 Credit Score Don’ts

Forget making changes to your credit card usage – it’s what you don´t do that can increase your credit score (or at least keep it from going south).

Just as you can´t buy happiness, you can’t buy a high credit score – the only way to get one is to demonstrate financial responsibility. “Creditors don’t care about how many millions you may have in your investment account, it’s how you use your credit.

Steer clear of these 10 things experts say can mangle your score.

(1)Don’t avoid using credit.
If you don´t use credit, you won´t have much of a credit score. “A credit score is an important tool companies use to protect themselves,” Sweet says. The lower the score, the higher the risk, and this can affect whether or not a loan is approved.

(2)Don’t miss payments.
Paying a bill late will hurt your credit, but missing a payment will damage it even more. “If you do so, you can´t make it up,” Sweet says. In other words, making two payments in the next billing cycle will not remove the blemish from your credit history. Whether or not you pay your bills on time determines 33% of your score.

(3)Don’t limit loan types.
Despite what your bank account may think, a car payment and a mortgage may not be enough. Also managing an installment debt, such as a credit card, is a good indicator of credit suaveness. There are five elements to the credit score model and revolving credit, which allows consumers to charge and owe different amounts each month, is one of them. “It´s 10% of the score,” says Gail Cunningham, vice president of public relations for National Foundation for Credit Counseling.

(4)Don’t close unused credit card accounts.
Actually, just use caution, says Sweet. A factor in credit score models is your utilization, which is your debt vs. how much is available. For instance, if you owe $4,800 on a card with a $5,000 limit, you´re using most of your available credit and this “utilization” will have a negative impact on your score. Counting toward 30 percent, your utilization is the second highest factor in your credit score. You should charge no more than 30% of your available credit, recommends Cunningham.

(5)Don’t be a credit tease.
Don´t run up charges all over town or apply for several cards at once while looking for the best rewards program. Recent inquiries means that you have accessed your credit and this can affect your score negatively. “This signals that you´re desperate for credit and don´t have enough cash available for your purchases,” says Cunningham. She adds that if you are shopping for a major purchase, such as a mortgage or car loan, the inquiries will usually roll together into one.

(6)Don’t rob Peter to pay Paul.
Don´t charge anything unless you know how and when you are going to pay it back. One of the benefits of credit is the ability to spread out payments on a big purchase, not to delay paying with hopes that the money will come in – from somewhere. If you need to use a credit card for convenience, use a prepaid card or a secured card that enables you to make payments to your own line of credit.

(7)Don’t get on the call list.
When a debt turns into a collection account, it´s an indication that you got yourself in hot water. Once a collection agency jumps into the arena, it becomes the owner of the debt, which will show on your credit history. Trying to make payments to the original debtor will not make the collection agency or the negative mark on your credit go away.

(8)Don’t forget the little things.
That library fine you didn´t pay or the health club contract you signed but didn´t honor can show up on your credit report. Any debtor has the right to report unpaid bills to the credit bureaus, and many of them exercise that right.

(9)Don’t have a balance of over 30% of your available credit.
Owing money on credit accounts doesn’t necessarily mean you’re a high-risk borrower with a low credit Score. However, when a high percentage of a person’s available credit is been used, this can indicate that a person is overextended, and is more likely to make late or missed payments. Part of the science of scoring is determining how much is too much for a given credit profile. 30% of your FICO Scores take into account this percentage. Note that even if you pay off your credit cards in full each month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report.

 

(10)Don’t give up.
If you have late payments, missed payments, defaulted loans, and similar credit mess-ups in-between, don´t give up and think that your credit history is ruined. Although offenses like these generally stay on your credit history for seven years, the recovery clock doesn´t start ticking until you have one full month of paying all of your debts on time, says Sweet.