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Credit Reporting: Re/Establishing Credit |
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More Advice Team |
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I am working to get my bad credit history back into shape. I recently started a new job and I am going to be able to get caught up on my bills in the next year. I am going to need a larger home. How long, after you get your bills out of collections and get any outstanding debts paid, will mortgage companies consider you safe to loan money to again? -John |
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Dear John,
It is hard to say when you will be considered a good credit risk. A home is one of the largest purchases a person will ever make. You are borrowing a lot of money and it is no wonder that your lender wants to be sure you can pay it back.
Different creditors use different criteria when making lending decisions. It is safe to say that the higher your score, the easier it is to obtain a loan with desirable terms. I applaud your efforts to improve your credit history. As you continue to use credit wisely and your derogatory information ages, your score should improve.
Best Wishes,
The Advice Team |
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I came across an ad in the Yellow Pages of a place that offered to "fix your credit or your money back!" Now, I know, that generally there is no way to "fix your credit report," but how they said they did it was curious. They said that they send notices to the CRA's that the entry is incorrect, and banking on the fact that some creditors purge their records after two years that the creditors will no longer be able to prove the entry on the report. Is this a scam? -Maceo |
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Dear Maceo,
Yes, this is probably a scam. Furthermore, any attempt to remove accurate information from your credit reports is probably unscrupulous and possibly illegal. Creditors and the credit reporting agencies are aware of these tactics and are doing everything they can to prevent them.
The best cure for a bad credit rating is time. Derogatory information stays on a credit report for 7 years (bankruptcy is 10). If you continue to pay your bills on time and as agreed, your credit will improve.
You can learn more about credit repair scams by visiting the Federal Trade Commission’s website at www.ftc.gov.
Kudos for not falling victim,
The Advice Team |
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I defaulted on a student loan, fell for the "pay it or we'll destroy your life" line, paid the loan off in a lump sum. Now, of course, I have a defaulted loan on my credit record with a $0.00 balance!!?? What can I do about that? -Jim |
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Dear Jim,
Because you did not pay your loan before you fell into default, I do not know of any way to remove the notation from your credit report. It will remain for up to seven years. Sorry.
The bright side is that a paid debt always reflects better than an unpaid debt. I hope you were exaggerating when you described the collection tactics used by your creditor. There are laws dictating the method in which debts can be collected and unwarranted threats are a definite no-no. To read more about the Fair Debt Collection Act, visit www.FTC.gov.
The Advice Team |
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I graduated college with 15 credit card bills. While in college I was excellent at paying bills on time, however after I graduated I had trouble paying bills on time. It is two years later and I have paid them off and I am down to five credit card bills. I no longer use my cards and I have a steady job as a teacher. I need information on improving my credit rating to improve on late pays. -Melissa |
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Melissa,
Pay your bills on time and as agreed.
Hoping for more? That is really the best advice I can offer. As you know, derogatory information stays on a credit report for 7 years (bankruptcy is 10). Fortunately, it sounds like you are on the right track and your credit rating is most likely following suit.
I recommend that you pull a credit report to see where you stand. You can obtain free copies of your reports annually by visiting www.annualcreditreport.com.
Susan |
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I have just got my life in order and got a great job. I plan to save 15 percent of my weekly paycheck and I would like to establish a positive credit history. Can you suggest a plan to establish credit? Should I start with a secured credit card, a secured loan thru a credit union, a department store credit card or what? -Barry |
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Barry,
Time will heal any past damage to your credit report. In the mean time, you can try to improve your credit report in a couple of ways. One way is to save some money. Let's say you save $1,000. With this $1,000, you go to your bank and tell your banker you want to borrow $1,000 and to guarantee repayment of the loan, you agree to put up your $1,000. You explain to your banker the purpose of your getting the loan is to re-establish your credit.
Another way to rebuild your credit is to get a secured credit card. You make a deposit into a savings account with a bank to secure a line of credit. The credit card company then issues you a card and a line of credit for at least the amount of your deposit.
Congratulations on your new job!!
The Advice Team
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My boyfriend and I are currently debating which way is better to build credit. I say he should pay off his credit card in full every month to establish better credit. He says it builds his credit faster if he pays at least the minimum payment. He also says that if he pays off his credit card bill in full, the credit card company won't increase his limit. Please help us find out what strategy is better. Are there other alternatives? -Kim |
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Dear Kim,
Building a good credit history is easy. There are only two things you need to remember: (1) pay your bills on time and (2) pay them as agreed.
Paying a credit card balance in full each month will result in positive notations on your credit report. So will making the minimum payment on time. Being a credit counselor, I definitely prefer the “in full” method! It will help you to avoid getting in over your head.
The other reason you may want to pay in full is to prevent your “usage” from appearing too high. Several high balances may reflect poorly when trying to obtain future credit.
Best Wishes,
The Advice Team
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When I was a freshman in college, I started receiving tons and tons of credit card offers. I was trying to be patient and wait until I at least got a part-time job. I got a job and then I got the cards. At first it was fine, then I started getting behind on payments due to financial aid reasons. I tried to keep the cards up but I just could not seem to do it. Now I am about to graduate from college and I would like to start trying to repair my credit. How long will it take me to do this? Someone had told me it took seven years and someone else said two. -Shay |
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Shay,
The federal "Fair Credit Reporting Act" (FCRA) states derogatory information can remain on your credit bureau file for seven years from the time the account is placed for collection, charged to profit and loss, or subjection to any similar action. Even if you start to repay on the account and ultimately payoff the account, the seven year time frame does not change. The account can still be on your credit bureau file. Your account would just show that payments are being paid or that you have paid off the account. But the derogatory notation will still remain for the seven year time frame.
That doesn't necessarily mean that you will not be able to obtain credit for the entire seven years. The impact of your past delinquencies will lessen over time as new, positive information is added.
The Advice Team |
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