Rebuilding Your Credit

Bad Credit Hurts

Do you have a bad reputation with your friends, family or co-workers? Do you like being disliked?

When you have a bad credit report, you have a bad reputation in the financial world. And the financial world is much bigger and more interwoven than you might believe.

Everyone knows that bad credit can cause you to be turned down for loans and credit cards or force you to pay higher interest rates.

Fewer people realize that they can also be turned down for a rental apartment, lose a job opportunity, pay higher utility deposits or even higher auto insurance rates if they have bad credit.

Also bad credit is not only the result of not paying bills on time. Traffic tickets, especially for drunk driving, criminal convictions and simply not paying your overdue book fines to your public library may negatively affect your credit report.

If you have good credit, it’s important to maintain it. Mostly it is a matter of living what most people consider a normal lifestyle and handling your finances responsibly.

If your credit is bad, you have to face the task of rebuilding it as quickly as you can.

Let’s look at a very real scenario. You need to make more money to pay your bills. You find a better paying job that would be perfect for you. The potential employer checks your credit report and you don’t get the job.

As a result you need to move into a smaller apartment. However several landlords turn you down and once you do find an apartment, your utility deposit is twice what you thought it would be and more than you can afford. Then your car insurance comes up for renewal and there’s a big increase in premiums – another item you can’t afford.

How Do You Re-establish Your Credit?

The most obvious answer is to get caught up with your bills and then make sure you keep paying them on time. But for many people, it’s too late for that.

You should first concentrate on your basic needs, food, shelter and utilities. If you own a home, get your mortgage up to date or talk to the lender about refinancing. Maybe it would be better to sell and move into an apartment, rather than face foreclosure.

If you are late on your rent, make an arrangement with your landlord to get current.

You and your family need a place to live and keeping your house or apartment is vital.

Next you need to eat, but it doesn’t have to be in restaurants. You can eat more cheaply at home than even at McDonalds or Denny’s. Brown bag it for lunch.

Save on groceries by buying store brands and bigger size packages. Also do you qualify for food stamps? If so, get and use them.

Utility companies will usually give you a little leeway. You might even qualify for assistance in paying these bills from either the company itself or welfare or charitable agencies.

Whatever money you save this way should go into debt reduction.

Now you have to address paying the other bills, the car loan, the credit cards and other personal loans. If necessary, you might have to have these wiped out permanently.

Can you sell your car and take the bus? How much would you save in car payments, gasoline, maintenance and insurance?

Can you raise more money? Can you work a second job or start a work at home business? Can you ask your employer for job training that will allow you to move up in pay? Can you go to the community college or job bank and see what kind of new skills you can acquire?

One thing that many people do not consider is moving. If you live in an area of the country where jobs are scare or the prevailing pay rates are low, why not move to a place where jobs are more plentiful or pay rates higher.

For example, I understand there is an extreme shortage of labor in New Orleans in the aftermath of Hurricane Katrina and even unskilled help is paid well.

You can check out the help-wanted ads of most out-of-town newspapers in your library or on the internet.

Go to where you can make money - don't wait for it to come to you.

Can you borrow from family or friends? If so, prepare a promissory note and stick to its terms in order to avoid future conflicts.

Once you have cut spending to the bone and raised your income as high as you can, you have to prepare a realistic budget. List all your income and debts and then figure out if there is any way you can possibly pay your debts.

If you can’t then you should consider credit counseling, debt negotiation or bankruptcy. Read Debt Reduction Strategies for information.

Strangely, the best course might be bankruptcy. It wipes your record clean with less negative repercussions than other methods might create.

Your credit score might actually improve, you might be offered new credit and you will probably feel psychologically relieved.

Just remember that while credit issuers might not punish you too severely for going bankrupt, potential employers and landlords probably will. So make sure to have a fairly secure job and a place to live before filing.

Get the names of credit counselors, bankruptcy attorneys and consumer credit advocates. Find one that is highly regarded and meet with him to determine your next steps in re-establishing your credit.

Once you get things under control, make sure you take advantage of the situation and make permanent changes to your lifestyle so this never happens again.

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