How
do you go about completely repairing your credit and getting
new credit lines, mortgages, etc.?
Any credit repair consists of two
phases: removing the negative listings from your credit
report and adding new, positive listings.
Since just a couple of negative
listings will earn a rejection from most creditors, repair
of your negative credit should be the first priority. After
bankruptcy, for example, the credit report will show many
negative listings including the bankruptcy filing, discharge
and numerous "included in bankruptcy" listings.
While removing a bankruptcy from your credit report is no
easy proposition, it is possible and definitely worth the
effort. For more help, see repair
Your credit.
It is important to note that you may
be able to obtain much of the credit you need even without
repairing your credit report.
Most home loan guidelines (including
FHA guidelines) require that you have no negative credit
appearing within the last two years. This means that you may
have no late pays within the last two years and that any
collection, lien or judgment has been paid more than two
years ago. Even if you have some bad credit in the last two
years, you can often find a mortgage amongst the
"sub-prime" or "sub-A" lenders that will
finance you even before you repair your credit. These loans
will charge a higher interest rate and require more equity
or a larger down payment before they will close. If you have
good income and a reasonable debt to income ratio, a
sub-prime loan may be the key to refinancing or getting a
home while you repair your credit. In any case, if you are
working on your credit repair, you may be able to refinance
within a year at better terms.
Automotive financing will typically
allow some negative credit before credit repair, but with
less than optimal terms. If you have a few late pays, you
may pay a little more in interest (but it adds up fast, to
be sure.) If you have truly awful credit, you may still get
an auto loan, but at very high rates (but you should
definately repair your credit in the meantime.)
Standard rate credit cards seem to be
the most difficult when it comes to credit that still needs
credit repair. Most standard rate cards will reject you
immediately for any negative credit whatsoever. Yet, there
are many credit cards that work with bad credit and help you
to repair your credit. Some require deposits and others
require a significant annual fee. Most have low credit
limits.
So, once your credit repair is
underway, you can turn attention to adding positive credit.
You may have to accept some of these less-than-standard
credit options while you repair your credit. But, a word to
the wise, there are many credit repair scams out there that
prey upon the credit distressed. Even your local auto
dealership may take advantage of your vulnerable position
and your desire to repair your credit. Many phony credit
card offers exist that allow you a card, but one that is
only good for the company's limited line of merchandise.
Mortgage brokers often hide exorbitant fees in loans to
borrowers who need credit repair. It is not uncommon to
charge credit repair customers four to eight
"points" on a sub-prime mortgage loan. These
points amount to tens of thousands of dollars that you must
pay over the life of the loan. Make sure that you read the
fine print and compare your mortgage, auto loan or credit
card to the typical terms of regular financing if you are
applying before your credit repair is complete.
With that said, there are many good
options for repairing and rebuilding credit that you can
find on the internet or at your local credit union.
Maybe you've recently finished
repairing your credit or maybe you're young and haven't used
credit yet. In either case, here are a few tricks to credit
repair and building a positive credit history quickly and
cheaply. Most times you start building some good credit in
just a couple of weeks. But, beware, if you stack too many
open accounts, or too many credit inquiries, you will be
denied based on debt to income ratio and excessive credit
inquiries.
If you know someone (like a good
friend or parent) who has good credit, you can
"borrow" their good credit listings and begin to
repair your credit. This friend must have credit cards, and
must trust you enough to allow you to become an
"authorized user" on his or her credit cards. Just
have your friend call the credit card company and request
that you be placed on his card as an authorized user. A copy
of the card will be sent and you may simply return it to
your friend. Your credit file should soon show an open
account with all of the positive history that your friend
has created over the years with that credit card. A small
footnote will sometimes show that you are an authorized user
of that card. Remember, though, when a new credit grantor
goes to review your file, he may insist that the balance on
the card appear on your debt to income ratio. That shouldn't
disqualify you for credit if your income is sufficient and
you don't have an excess of debt on your file.
There are a number of good secured and
unsecured credit cards that advertise on the internet. These
cards are designed to help you to repair your credit.
Understand, however, that secured credit cards will appear
on your credit report as "secured" and will not
necessarily repair your credit history as much as an
unsecured card.
There are a number of creditors who
are traditionally more accepting of those with little credit
history or who are in credit repair. For example, many
college credit unions will extend low limit credit cards to
students without a credit history. Many department stores,
such as Sears, will extend a credit line to encourage you to
shop at that store, even if your credit repair isn't yet
complete. Electronics stores, furniture stores and cosmetics
shops are all usually open to extending credit to credit
repair candidates.
As with any line of credit, you must
make sure that you handle these new accounts responsibly. It
is a temptation to use a department store credit card
frivolously. Just remember that you have to pay back every
dime, with interest. |