Rebuild Credit
Today's podcast is on rebuilding credit thus the blog will be on that same topic. I have covered building credit in a past podcast so this time around I will teach you how to rebuild your credit. When people are tired of getting collection notices and seeing their credit not improving the first advice they get is to file a Chapter 7 bankruptcy. NO! Don't do it. It is crazy to me to see people with as little as $10K debt filing bankrupt when the rich person files bankrupt wiping out hundreds of thousands of dollars in debt. They have had the benefit of hundreds of thousands of dollars that gets wiped out. That person with a debt of $10 to 20K probably only had $5K as the original amount. That $5K ballooned into 4 and 5 times that from interest charges. If nothing else, you should file a Chapter 13 because not only does that force you to change your spending habits but it is a form of credit rebuilding. But that's not the only solution.
The first thing you need to do is to obtain your credit profile from the national credit bureau. The first option is to pay them all off. But if you cannot afford to do this, then call each creditor and work out a payment plan. For those that are in collections, first have those that are from debts older than 7 years removed from your profile, and the rest, negotiate with them for a lesser amount. Make sure you get this in writing and make sure you negotiate for them to take it off your credit profile. For those of you who have the money to pay these debts, do it! Even if you disagree with how much more the debt has amounted to, bite the bullet and pay it because it will save you in the long run. For those who get a nice tax refund, pay off your debts.
Once you pay off these debts in your credit profile, apply for a store credit like with Lowe's or with Ikea. You may start off with a low limit but you will work your way up. Use the credit wisely by spending only what you would have paid in cash. Then take the cash and pay off the statement balance. Here is another piece of advice. Set up auto pay so you never forget and end up with additional charges. Just make sure you set it up to get notifications before payment is deducted just in case. After 3 months of being on time every month, apply for another store credit and do the same thing. After 3 months of two cards on time every month, now you are ready to apply for a credit card. Pick any company but do your research. I personally love Capital One. They will give you credit to rebuild. The limit will be small and the interest rates will be high but who cares? It is irrelevant to you since you will pay off the debt every month. Before you know it, your credit score is in the low 600s.
Next, see if you can find a friend or family member with great credit. Ask them to add you as an authorized user. You don't have to use the card and if they allow you to just make sure you pay for what you charged at the time the minimum payment is due. And please do not ever pay the minimum payment. You will have paid more money than the credit used. And it is not good for your credit score. Here is another tip. Keep your balance at around 1/3 of your limit. Even if you only have a $300 limit, charge only $100 until they increase your limit. Just remember you are taking baby steps and rebuilding your credit is not going to be an overnight fix like these credit repair companies promise you or that Bankruptcy lawyer advised you. All these people are getting rich off middle income and poor people with bad credit. Follow my blueprint and make yourself rich.
Great credit is the stepping stone towards financial success in this country. Everything costs more to you with bad credit. You get stuck in a financial rut with bad credit. Get yourself out of that rut by following my simple steps and get yourself on the road to financial success.
Until the next time, this is Dr. KnowItAli
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