The ABCs of Credit Repair

Good credit is important, but things can go wrong for any number of reasons. How can you repair your credit? As with any kind of healing, credit repair takes time. Here are some tips for getting your credit (and life) back on track.

A: Asking (and Answering) the Necessary Questions

Denying that you have a problem or procrastinating will only make things worse. You can prepare for discussing your situation by writing down your answers to these questions:

• Exactly how much do you owe, and to whom? Don't guess. Add up the amounts of your credit card bills, student loans, car loans, and personal loans. Write down each amount and the name of each creditor, and add them up. Write down the total and forgive yourself! You've taken the first step toward credit repair.
• What is the APR for each of your credit accounts? The APR, or annual percentage rate, is the amount of interest and other finance charges stated on an annual basis for each of your accounts. Make a list of your creditors, the amounts owed, and the APR for each. Arrange the list in descending order from highest APR to the lowest. This list is your "big picture." Financial advisor Suze Orman recommends paying off the highest APR account first. Work down the list, applying the amount previously applied to paid-off accounts to reduce existing balances more quickly. There can be compelling reasons for prioritizing repayment in other ways. If you're behind on your mortgage or rent, please make your housing payment! Losing your home will only cause deeper financial problems.

B: Beware of Credit Repair "Help"

The only way to repair your credit is to repay your debts. No third party can legitimately reverse or "erase" negative credit information, and most companies offering this service only do the same thing you could do yourself--sending form letters to creditors and credit bureaus and hoping some negative information disappears from your report. Others may try to "rebuild' your credit history by paying someone else to put you on their credit cards as an authorized user. They charge hefty fees to attach someone else's good credit history to your report. Lenders and lawmakers are wising up to this practice, however. Fannie Mae's automated underwriting program, for example, does not include authorized user accounts when evaluating your credit.

C: Contact Your Creditors and/or a Counseling Agency

Once you know how much you owe, contact each creditor and tell them how much you can afford to pay. Offer a specific amount immediately. If they won't accept your offer, contact a credit counseling agency. These agencies can help you work out repayment plans that may include reduction of debt and/or waivers of late fees. The Federal Trade Commission provides information for consumers who want to enroll or are enrolled in credit counseling programs. They advise avoiding organizations that charge a fee to "learn more" about their services.

So here are your ABCs of fixing up your credit. In this case, the "C" also stands for congratulations. Congratulate yourself for taking steps toward credit repair!

Sources:

• Suze Orman: Managing Debt
• FTC Facts for Consumers: For People with Debt Management Plans - A Must-Do List

About the Author:
Karen Lawson started writing stories about birds and surfing at an early age. For more than ten years, she enjoyed a productive corporate career in mortgage banking before moving to Reno, Nevada in 1997. Karen earned BA and MA degrees in English (specializing in writing) at the University of Nevada. Significant areas of research and writing include truth and ethics in creative nonfiction, medical humanities, and the symbolism and lore of birds in American literature and culture. Karen has taught English at a community college, is writing a collection of poetry, and enjoys birdwatching and walking her basset hounds.