Most people think you have to pay off everything you owe to get good credit, and that’s why most people give up before they even begin.
Don’t buy the hype. It aint that serious. and it is DO-ABLE
DISCLAIMER: I am not a financial expert. I am only sharing a strategy that worked for me and some others who have tried it.
You’ll hear all kinds of advice and many people will charge fees or try to sell you on products, but how do you know if any of it will work for you or not?
The thing about credit is most people don’t know how it’s calculated and almost no one really understands their rights as it relates to credit and debt.
One thing most don’t know is every credit profile is different, and the approach for one person won’t be identical to everyone. But these steps are a general guide, but if you feel like you need a little more personal advice, let me know.
In this post, I’ll focus on the steps to “credit rebuilding” but in following posts, I’ll also
1. coach you on how to speak with creditors, (HERE)
2. options with student loans,
3. when is bankruptcy an option to consider (rarely but it happens),
4. and finally, what to do and what to NOT do with good credit. (HERE)
Here are the steps I took to rebuild my credit. (Do not call it “repair” because your credit is not “broken.” It’s just smaller than it needs to be. You need to BUILD IT, with the tools you have.)
- Step 1 – go to Annual Credit Report.com and get your free credit report from all 3 bureaus
- Sign up with an account on Credit Karma to monitor your Vantage Scores (Yes it’s going to be somewhat different from your FICO score that lenders use, BUT IT’S A GOOD VIEW OF TRENDS with your scores. If Vantage is going up, your FICO is too)
- Step 3 – Open up a checking and savings account with a FEDERAL CREDIT UNION. You want to choose one with a history. I know there are several new ones, but I can’t vouch for their usefulness. These 2 are my top choices: Greater New Orleans FCU and University of New Orleans FCU
- Review your credit reports and make a list of all your negative accounts and a separate list of your active accounts. Any smaller account can be paid off soon. Any larger account should be disputed OR call and ask for a repayment option that works for you. THE GOAL IS NOT TO PAY THEM OFF RIGHT AWAY but to show progress. That will pick your score up quick. So if you owe $10K, don’t freak out. Just pay them $10 a month and ask them to report the info to the bureaus. Monitor Credit Karma to be sure that they are doing this.
- What if you have strange accounts or “charged off” accounts? Submit disputes on Credit Karma OR send a letter to the 3 bureaus with your info and the name and address of the creditor. In the letter only say “This account information appears in error. I request that the following information be reviewed to determine the validity of this account: creditor name, creditor address, amount owed, payment history, account status.
- Step 6 – apply for a small personal loan and a secured line of credit with your credit union from Step 3. You waited until now to ask for credit so that you have a little history with them.
- Pay on the loan and line of credit TWICE A MONTH. This is crucial. This step and the payments from Step 4 build NEW credit history and establish your improved credit habits. You CANNOT get healthy credit without evidence of habits.
- Student loans are the Devil, but a necessary one to deal with if you have them. I requested a “hardship repayment plan” which allowed me to pay $5 a month for 6 to 9 months and immediately my student loans were in good standing with all 3 credit bureaus. Most of our accounts are now managed by NAVIENT at 888 272 5543
- At this point, your 12 months should have passed, and your score should have increased substantially. The increase was due to credit habits in Steps 4 and 6, student loans in good standing from step 8, the removal of collections and charged off accounts from step 4 and 5. All of this together establishes you as a “low credit risk” to banks.
Now what do you do next?
Do not buy TVs and phones and crap like that.
The goal with good credit should be to GROW WEALTH. Self-made millionaires (those who did not inherit their wealth) USE CREDIT to make money.
I’ll have a follow-up post on some of their advice and how you can apply it.