Rebuilding credit following bankruptcy or other financial problems is challenging. If you’re struggling to rebuild your credit following poor financial choices or circumstances beyond your control, it’s important to know how to go about it responsibly. You need to be able to make payments on time every month so that you don’t fall into the same trap you were in before, choose your loans wisely so that you don’t get in over your head, and make other sound financial decisions to help you get back ahead.
Overwhelming debt and poor credit are two problems that plague many people in the United States. Recent statistics show that more than 80 percent of Americans have overwhelming debt. If you are one of those people, there is hope for you. You can rebuild your credit using a step-by-step process.
Credit rebuilding is a process that one cannot approach by starting at any step. You must use the correct step process or the situation may be seem like it is unbearable for you to handle. The following is a reliable plan of action for you to use so that you can one day get back on track and rebuilding your credit.
Step 1: Have Someone Calculate Your Disposable Income
Disposable income is one of the most important calculations you will need to make when it comes to rebuilding your credit. Any specialist that you speak to will want to know how much money you earn during a month’s period and what your household expenses are. Your income includes all monies that you earn during the course of a month, and your household expenses are expenses such as rent, utilities, food expenses and the like.
You can get someone to calculate your disposable income, or you can calculate them yourself. Do not count your debt in the “household” bills it will give you a miscalculation.
Step 2: Get Your Hands on a Credit Report
The second step that you will need to take if you want to rebuild your credit is getting your hands on a credit report. All three major credit bureaus are obligated to provide you with a copy of your credit report at your request.
You can visit one credit bureau at a time, or you can visit a website that offers all three credit reports. You can obtain an instant copy of your credit report and score by answering identity-confirming questions that the site asks you. Once you have the credit report on the screen, you can then take actions that can improve your situation.
Step 3: Dispute All Inaccurate Information
You must read your credit report thoroughly so that you can find inaccurate information. The credit bureaus may have inaccurate information such as improper addresses, misspelled names, inaccurate balances and more. You may even notice an account that you do not remember opening.
What you can do to rectify the situation is file a dispute for every item with which you do not agree. The bureaus have to investigate the matter and give you a response within 30 days. Each removed item will provide you with a boost in your credit report.
Step 4: Pay What You Can
You can try to pay off any small accounts once you finish all of your disputes. Chipping away at the credit report by taking care of one small account at a time can help you immensely. You may be able to clear out a few medical bills or other annoying bills that are sinking your credit score dramatically. The next step involves gathering crucial information about relief options that you may have.
Step 5: Gather Information About Relief Options
You have several options when it comes to rebuilding your credit. You can try self-negotiation, debt negotiation, bankruptcy, or debt consolidation.
Self-negotiation is a process during which you attempt to speak to your creditors alone without the help of a lawyer or an experienced credit repair and consolidation counselor. You will most likely not have much luck with self-negotiation, but you may fall upon a customer service representative who is willing to give you a chance. That person may remove some late fees and other charges so that you can try to get back on track. The decision will depend on the amount of time that you have had the account and how faithful you have been in terms of making payments on time.
The debt negotiation option requires the assistance of someone who has experience in the field of debt. This person may have special clout with the creditors that he or she can use to get you a “yes” answer when you try to negotiate for a settlement. A debt negotiation is nothing more than an agreement for a creditor to take less than the amount that you owe to settle the debt. The creditors may be willing to negotiate to settle your debts for up to 50 percent of their original value. Sometimes, they will take less if you are willing to pay something.
Debt consolidation is a process that you can complete in one of three ways. You could conduct a self-consolidation, or you can apply for a debt consolidation loan. Another option that you may try is a debt management plan, which is similar to a consolidation.
The term consolidation refers to merging all of your debts into one account. A self-consolidation consists of applying for a high-limit balance transfer credit card and moving all of your debts to that card. You have to have a high credit score to do that type of consolidation, however. The debt consolidation loan is a product that a special lender may extend to you. The credit score requirements may be lower than that of a high-limit credit card. The loan will cover all of your existing credit accounts, and you will only have to pay one creditor instead of many.
The last option is a debt management program, which is similar to a third-party consolidation. You will work with a counselor who will first try to get your debts down as much as possible through negotiating with the creditors.
Bankruptcy is usually a last resort, and it works well for people who do not have the funds to repay their debts. Chapter 7 and Chapter 13 are the two main chapters for bankruptcy. You can qualify for Chapter 7 bankruptcy if you make less than the state median and meet other qualifications. An attorney can help you determine if you are eligible for Chapter 7.
Chapter 13 is a Chapter of bankruptcy that will require you to pay a portion of your bills back to the creditors. You will most likely qualify for Chapter 13 if you do not qualify for Chapter 7.
Step 6: Speak to a Specialist About Relief Options
You can speak to a specialist about your relief option of choice just as soon as you decide. You can contact a debt management company, bankruptcy attorney, credit card company or someone else.
You’ll want to ensure that you contact a legitimate company. You can research the company or specialist by visiting the website and conducting other investigative tasks such as reading the site testimonials, reading consumer reviews, and checking with the Better Business Bureau to see if it lists the company as a valid company. All that information will let you know if you would like to trust the company to resolve some of your credit issues. You can schedule a consultation with a specialist at your company of choice once you decide how to resolve your issues.
Step 7: Enroll in a Program
Your next step is enrolling in a program as soon as you decide which way is the best way to rebuild your credit. You will have to provide your counselor or lawyer with a wealth of information about yourself such as your social security number, paycheck information and other personal information. The counselor will need to have access to your credit report to try to resolve the issues with the creditors. Signup will most likely take less than an hour.
Step 8: Sign up for Credit Monitoring Services
Credit monitoring services can help you to keep an eye on your credit score or watch it grow. You can sign up for a trial offer of a credit monitoring service that can notify you every time your score changes. A credit monitoring service will notify you also if someone uses your information to open an account of some kind. You can receive email or text alerts so you can keep close contact with your credit.
Step 9: Stick With the Program You Choose
Next, you will want to make sure that you stick with any program that you enter for its duration. For example, the counselor may advise you that a debt management plan will last for five or six years. You’ll want to stick with it so that you can get back in the credit game.
Step 10: Watch Your Credit Grow
You can take other steps while you watch your credit grow during your recovery period. You can save extra money by working a second job. You can avoid conducting credit inquiries so that your current inquiries will drop off. You can also open a savings account and start putting away money while you are getting your debt down. Financial recovery is possible. You just have to be willing to take the steps.