Dealing With Credit Problems

Your credit history is a major factor in determining whether or not you will qualify for a loan, so your lender will look at it closely.  It tells the lender how you have handled past debts (as far back as seven years) and how you are handling current debts. The lender wants evidence that you are a person who repays your debts and repays them on time.

Lenders do not expect you to have a perfect credit history, but they do expect you to have solved your credit problems before you apply for a mortgage loan.  If your payments were often late in the past, but have been on time for at least two years, the lender can see that you are now handling your financial responsibilities.   But you will be judged additionally by your employment history and employment outlook.  Everything must add up to a profile of financial responsibility.

When you fill out the loan application, you will have to enter all of your current debts. Debts include installment loans (car loans and loans on other major purchases, like furniture) and revolving credit or loans, such as payments on credit cards.  When you fill out the loan application, be completely honest.  Don’t think of leaving out a debt; the lender is going to order your credit report, which will list all of your debts anyway.

If you have had problems repaying debts in the past, your credit report will show it. After seven years, credit problems should be removed, except for bankruptcies, which stay on a credit report for ten years.  It is a good idea to order your own credit report before your lender does, so that if there is any incorrect or old information, you can clear it up before the lender sees it.  You can get a credit report copy from any of the three national credit-reporting bureaus – Experian, Trans Union, and Equifax.  To find out how to order your credit report, call them toll-free: Experian at (888) EXPERIAN; Trans Union at (800) 926-8800; Equifax at (800)685-1111.

WARNING SIGNS OF CREDIT TROUBLE

·        Charge card balances near the credit limits

·        Paying the minimum due on accounts

·        Using one credit card to make payments on another credit card

·        Borrowing to meet monthly payments

·        Putting off one bill to pay another

·        Taking advances on paychecks or depending on extra income such as overtime pay

·        Avoiding the mail

·        Receiving collection calls at home or work

·        Worrying about your debts

·        Routinely spending more than you earn

·        Making day-to-day purchases on credit

·        Knowing that missing one paycheck would create severe difficulty

COMMON CREDIT PROBLEMS

Most lenders will not approve a loan if the borrower’s credit report shows an open collection account, even if the amount due is small.  Other credit problems that make it difficult for a borrower to get a loan are:

·        Multiple credit cards with balances at the limit

·        New credit when existing debts are still unpaid

·        A pattern of 30-, 60-, or 90- days late payments on current debts

·        Bankruptcies

·        Judgments

·        Charge-offs

·        Foreclosures

STEPS YOU CAN TAKE YOURSELF

              *    Make sure you actually owe the people and companied that say you                               owe them

              *    Contact your creditors and make some kind of arrangement to pay

·        Budget your expenses

·        Reduce your expenses

·        Use your savings, if you must, to pay down debts

·        Get a second job

·        Seek help before it is too late

HOW TO USE CREDIT CARDS PROPERLY

The most destructive thing you can do if you are saddled with overwhelming debt is to deny that you have it.  For many people, recognizing the problem is the most difficult step.  The most empowering thing you can do is to handle the problem.  This requires that you contact each and every creditor, either by phone or by letter, and explain your situation thoroughly.  Tell them exactly what you intend to do about it.  Lenders panic when they don’t hear from borrowers.  They usually are reasonable and helpful when they hear from people who have problems.   Most of the time lenders will try everything to work out the debt situation with the borrower if he/she calls, keeps promises, and has a plan.

The best way to use credit cards is to pay the full amount due every month.

Usually your credit cards allow a grace period of 25 to 30 days from the date when you are billed, until you will be charged a finance charge.  If you make a purchase immediately after your billing date (printed on your bill), and you pay the bill in full, you can gain free credit for almost two months.

Each time you use your credit cards, write out a check for that amount and put it in an envelope.  You will begin to see your checking account balance in your check register decrease.   At some point you will realize that it is time to stop incurring debt for the month.  When the credit card statement arrives, simply gather up the checks you have written, and mail them with the bill.  This method is a great reminder that every time you charge something, you are making additional debt.

Every time you apply for a credit card, a mortgage loan, a loan from a car financing company, or some other type of credit, your record is likely to reflect an additional inquiry.  To minimize the number of inquiries in your credit report, apply only for the credit you feel is essential.  If creditors feel that you are applying for too much credit and possibly going beyond your ability to repay, they may consider you an unacceptable risk.

Finally, use your credit to purchase necessities and only when you don’t have the cash at the time.  Keep balances as low as possible.  Be sure to make all account payments on time so that the credit history you build will be a positive one.