What We Will Cover
– How did you get where you are
– The different paths you have moving forward
– How to know if you are ready
– How to deal with collections
– How to deal with charge-offs
– How to deal with judgments
– How to deal with disputes
How Did you Get Where You Are?
We have found that most people with low credit scores have had some form of financial trauma in their financial past. No matter how recently this financial trauma happened, it can still be a difficult thing to overcome.
Examples of these financial traumas are health challenges, divorces, or lost jobs.
If you currently have a low credit score, you are most likely in one of these three categories:
1. You are currently late on your existing debts, which can include credit card bills, and you are struggling to cover the amount you are obligated to pay back.
2. You have let your bills go into collection and you are now operating on cash.
3. You have begun to stabilize your income to debt ratio and may have even started adding to your savings. At this point, most people become tired of paying rent.
How to Know if You Are Ready
You won’t be able to do much until you can stabilize your income. As long as your income remains inconsistent, clearing up your credit shouldn’t be a priority. Starting to work on your credit now will only put you further behind when your next set of payments are made late.
You are ready to start working on your credit once your income is stabilized. Once you have accomplished this, you can start by getting a secured credit card, possibly two. It is important to only use this card sparingly, keeping the balance well below your limit. We recommend spending less than $50 a month. It is also important to pay off most of your balance each month. You won’t get points for a zero balance, but you also don’t want to start racking up a large bill. We suggest paying off all but $5 – $10 a month.
How to Deal with Collections
The answer to this will vary based on the amount of the collection and how long it has been open. If the debt is two years or older, don’t do anything. If the debt is less than two year old, you should attempt to settle the debt or work out a payment plan.
How to Deal with Charge-Offs
If you don’t have the money to settle or work on paying off your debts, charge-offs may be an option. A charge-off refers to a debt that the lender is no longer attempting to collect. A charge-off does have a negative effect on your credit socre, so this option is not for those who believe they will most likely be able to settle or pay off the debt using a payment plan.
How to Handle Judgments
Judgments are a nasty collection practice that can absolutely have a negative impact on your credit score and can even be a deal breaker for a home loan. To qualify for your loan, you will need to ensure the judgment is completely resolved and obtain documentation from the county stating as such.
How to Handle Disputes
Disputes are a way for borrowers to challenge what has been reported by the creit bureau on their creidt report. This is a useful way to remove incorrect information that is listed on your credit report and is negatively effecting your credit score. The credit reporting agency will have 30 days to investigate your dispute claim.
To find out more about how to raise your credit score from 500 to 700, contact Mike Durr, The Kingwood Mortgage Guy, at 281-348-9899!