People experience credit problems for a variety of reasons. Job loss, unexpected medical bills, divorce and money management mistakes are among the most frequent causes. But regardless of the cause, you can take steps to reestablish your credit.
When you apply for credit, the lender obtains your credit history from a credit reporting agency. The credit history includes your bill payment history, current unpaid bills, available credit, property liens, lawsuits and other related information.
Credi reporting agencies try hard to give accurate information, but they can make mistakes. If you are having trouble obtaining credit, begin by checking the accuracy of your credit report.
Individuals who are turned down for credit should receive a letter with the name of the credit bureau that provided the negative credit report. Consumers who have been turned down for credit within the last 60 days are entitled to a free report from the credit reporting agency that provided the negative information.
Federal regulations also allow consumers to request one free copy of their credit report from each of the three major credit reporting agencies - Equifax, Experian, and Trans Union. To request your free credit reports online, visit https://www.annualcreditreport.com/. Phone requests may also be made by calling 1-877-322-8228. Otherwise, expect to pay a small fee - usually about $10 - for your report.
When you obtain your credit report, check it closely for mistakes.
Common mistakes include information about someone with a similar name, information about an ex-spouse's account or listing a closed account as open.
Report any errors to the credit bureau in writing. It is important to state the error clearly and ask for an investigation. The credit bureau has 30 days to investigate the error and correct the information. On the other hand, credit bureaus cannot remove negative information if it is correct.
Most negative information generally stays on a credit report for seven years, and bankruptcy information is kept on a report for 10 years.
Beware of groups that advertise they can repair your credit report. These groups cannot do anything you can't do.
The law requires that credit repair companies provide your legal credit rights in writing. If you decide to use a credit repair company, do not pay any money until it has finished the work that it said it would do for you.
The first step to reestablish your credit is to build a good credit report. That involves examining how you manage your money and developing a spending plan for yourself.
Compare your income with your expenses, and make sure that you pay your bills by the due dates. If it would help, contact your lenders about working out a plan to make it easier to pay your current debts.
Another critical part of building a good credit report is that lenders must report good information about you to credit bureaus. So, be sure to check that the payments you are making on time - such as your rent, loan payments, utility payments and so forth - are being reported to credit bureaus.
An additional way to show that you are creditworthy is to use a secured credit card responsibly. To obtain a secured credit card, you must deposit money into a savings account as collateral.
For more information or to apply for a secured credit card, check with your local bank or credit union to apply for a secured credit card, and be sure to consider the fees and interest rates that apply to the card before applying. Even more, remember the main reason you have the card is to reestablish your credit by proving you can pay your credit bills on time.
Reestablishing your credit requires patience and work on your part, but getting control of your finances will help you. Many people are able to reestablish their credit within two to three years when they pay their bills on time, reduce debt and use a secured credit card responsibly.