Stop the credit nightmare! Many of us have faced a credit nightmare in the past or currently are. The plastic has taken over and we end up spending more than we earn. In many cases we buy sh*t we don’t need. Overextending ourselves to have an appearance that impresses others or sadly just trying to make it by paying monthly bills to spread the debt out. What can we do as people to get through it?
We are more than just a number
We have become a number instead of a human being. In a lot of cases, people use the system in the wrong way and just don’t care about paying the debt in a timely manner. Some of the people do the best they can and are on hard times. Those people potentially get overlooked and are generalized as bad people.
Take responsibility for your credit
There are many situations that can lead to bad credit. It could be that you just don’t pay your bills and don’t care. If this is you then this isn’t your program, move along. For those that care we will dig in a bit to see if we can get some ideas out to help. The ones that work. Do know that there are many different situations and many different solutions. Not all will work and there is no single magic button to fix it. The solutions all require your input and action to help yourself through it.
If your credit rating has been bad for a long time you need to stop the bleeding. Pull your credit and see where you are at with the three reporting bureaus. Equifax, Trans-Union, and Experian are the holy grails of what seals most people’s fate with that all-powerful number, your credit score.
Many calculations
Credit scores have different variables that are figured and calculated to create that magic number. The information needed to arrive at your credit score are as follows:
(there are many different pieces to the puzzle but this gives you a general guide)
- History of payments: Your payments that are late will negatively affect your credit the most. Lenders want to see consistent and on-time payments. If you have had repossessions or liens it will impact your creditworthiness as well.
- Balances that are outstanding: If you have a lot of open accounts with high balances that are maxed out, it will give the lender the impression that you aren’t able to afford what you have committed to financially. This also contributes to the formula of your credit score. The credit nightmare seems to stem partly from high balances.
- Credit history length: The length of time having an open account and how long you have used them play a big role in calculating history. If you have had an open account for many years and haven’t used it, it will more than likely not weigh heavily on the positive side of the credit score.
- Potential new credit: If you are trying to apply for new credit cards, car loans, or a mortgage, these “hits” or credit inquiry requests will affect your overall credit score. These “hits” are considered soft hits and don’t usually affect the score by that much, but keep in mind that if your creditworthiness is pretty bad each point will be important. When lenders see those frequent “hits” it doesn’t give them much faith that you are a reliable person.
- Different types of credit: The different types of credit you have is figured in. These are installment loans, credit cards, retail accounts, and mortgage loans.
All of these are factored in along with how many accounts you have.
Some actions to consider in resolving your credit nightmare:
Stop the unnecessary spending. Please pay attention to this and get motivated to fix your credit issues.
- Get a free copy of your credit report from each of the three bureaus. You are allowed to get one free copy per year from each. Scratch that! According to the FTC as of 2020, you can get up to six free per year. So, two each every six months. Ok, that helps, right?!
- Once you have your credit reports, go into investigation mode to ensure that everything on the reports is true in fact and have accurate reporting totals. Any erroneous information needs to solved by communicating with the account directly and also reported to the 3 bureaus.
- Any accounts that are deemed not true in fact may potentially be fraud. Fraud as in someone assuming your identity for the purposes of getting money or materials. Hopefully, you haven’t created fraud. Fraud bad! If you suspect fraud put a freeze on your credit until you get the situation taken care of.
- If your credit is failing because of slow or no payments, you want to contact your creditors to work out a payment plan with a more manageable payment schedule. The creditors would rather communicate with them for a lower amount versus not communicating at all. Stop dodging the calls if you owe. There are many different ways of accomplishing this, but you need to get the ball rolling sooner than later to start the rebuilding process.
- If your credit is in the pits to the point where you aren’t able to get credit cards then get yourself a secured card through your bank. Pay $500 to get the card then only use $150 or less per month. The whole credit card debate whether you should have or not have is a big topic amongst most, but my advice is just to go with one in the interest of assisting in the process of rebuilding your credit. Seriously, it will work but you have to be responsible for your purchases and not to exceed the $150. You can do like I did, which was just use it for fuel.
- To assist in your credit rebuilding journey, do keep your credit use of 30% or less. Meaning if you have $10,000 total available credit from your accounts only use less than $3,000. Be smart about it if you are going to work on the magic number. Pay the credit cards off before the bill is due. Do your best to minimize unnecessary spending, such as the $5 coffee drinks, and so on. You will thank yourself later, I promise.
Resources
Bonus:
If you have some old open accounts with balances that you haven’t paid in a very long time, you can dispute them with the bureaus. The purpose of a dispute in general is something that is erroneous on your credit report. In this instance, we are kinda playing a game. When the bureaus receive a dispute regarding an account on your credit report they will send written communication to that company. The communication requests proof that it is a valid debt and they have 30 days to respond. If there is no response within that time period the bureau will remove it from your credit.
There’s an exception, which is if you owe money for student loans or taxes. The unpaid taxes or student loans will stay on your report until the end of time. Items will usually stay on your report for about seven years and then drop off. You can also freeze your credit to prevent fraud and unfreeze when you need it.
Conclusion
Take the necessary steps to get your credit straight. Start with knowing where you stand with the bureaus, then proceed to getting back on track with any accounts that may have fallen behind. It may seem like a big task and it will be, but once you get the process started you’ll be closer to achieving it. I would suggest doing this even if you a cash type of person.
Have you been working on your credit? Some people may have good credit already but it’s great to improve it. What’s your strategy?
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