Credit is something that you've just gotta have these days. From a societal stance, we are at a credit crossroads where old school credit philosophies conflict with new era credit standards. As a person that had substantially bad credit (a sub 600 beacon score) at one point in my life, I understand more than most the difficulties in living with bad credit and the stress that it can't create in not only your financial well-being, but also your personal life. I improved my credit from the mid 500's to a credit score over 700 and here is the approach and steps that I took towards strengthening my credit.
Get Copies of All Your Credit Reports
I started by simply pulling a copy of each of my credit reports. You have to be sure to pull all 3 of them (Equifax, Experian and TransUnion) as I did. Don't get duped into joining some credit reporting service that will charge you each month. Go straight to each of the 3 major reporting agencies as you are legally entitled to a free copy of your credit report each year or to make things simple you can go to AnnualCreditReport.com and get all 3 reports from that site. Once you have them, you need to become intimately familiar with all the information therein. If there is anything on it that you don't recognize dispute it even if you are unsure it it's your debt. Be sure to dispute with each of the credit reporting agencies that has the debt listed on your report. Better safe than sorry.
Evaluate Your Debt and Begin the Payment Process
Don't start this phase until you have all 3 copies of your credit report as the reports vary from agency to agency. This was the hardest part of getting on the road to good credit for me. I literally took a pen and pad and put together a plan for repaying every single item on my credit report. My plan started by paying the items that appeared on all 3 reports first and in order of smallest to largest. The reason I did this was to get as many delinquent or bad debt accounts closed out as quickly as possible. Each item resolved equals additional points to beacon score. To maximize my payments on debt, I minimized my living expenses. I cut my cable services and then switched to the least expensive cell phone carrier I could fine and even began eating the cheapest meals possible. Every cent I saved went to the resolution of debt. I called every creditor and got as many settlements as I could and even got the IRS to accept an Offer In Compromise (without using one of those tax settlement services seen on TV). This was about a 2 year process for me, but could be longer or shorter depending on your income and amount of debt.
Establish a Good Credit History
Here is something that you probably won't hear too much, but while you're working on repaying your debt you need to insure that you are establishing a good credit history. One of the easiest and best ways to do this is with a major credit card. This is where old school philosophy clashes with the real world of credit. A major credit card is almost a necessity in this day in age. Sure you may have a debit card, but it won't help your credit history. This is also where you need discipline. I got a secured card and began using it for my everyday purchase. I never charged more than I had in my bank account to pay and I paid the balance off every payday to avoid interest charges. After a year of paying my credit card this way, I received an offer for an unsecured credit card. Contradicting what many experts say, I took the second card without closing my secured card. I then treated the second card the same as the first by paying off the balance each payday. This philosophy started a trend of watching my credit score increase. I eventually financed a car loan of approximately $5,000. After explaining to the lender (whom I verified reported to all 3 credit reporting agencies) what I was trying to do, they gave me a payment schedule over the course of 24 months.
Monitor Your Credit Score
Each year, I order new copies of my report and validate that nothing new is on them. This process was also helpful when I became a victim of identity theft. I also enrolled in Credit Karma. This is a free service that you can see as much as you want at no charge. Over the course of approximately a four year period, I watched my credit score rise from the mid 500's to over 700. The process wasn't overly complicated or complex, it just took discipline and an understanding of how credit scoring works. It worked for me and it can work for you.
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- Credit Reports
- credit reporting agencies
- credit score