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Maintaining and Restoring Your Credit in Tough Times

By
Real Estate Agent with Kenna Real Estate Company

With the huge numbers of people losing their jobs and not being able to find jobs quickly because there are so many people competing for those jobs,  more and more people are running up their credit cards and many are not able to pay mortgages and car payments because they have exhausted their savings.  How will this play out?  One way is that credit scores have or will be going down for many, many people. 

How do you keep that from happening?  If it has already happened, how do you bring that credit score back up?  What are some things that you can do to rebuild and repair your credit?

Another problem for people seeking credit in the future will be that lenders are now requiring higher credit scores.  You can't blame them, they are trying to prevent getting into the mess they have found themselves in now because of low lending standards in the past.

What can you do to get your credit score on the way back up? 

For many you will need to stop using your credit and bring your balances on credit cards and other accounts down.  For others you may not have had many credit accounts or cards, but you have had a problem making your house payments and/or car payments because of a job loss, job cutback, or escalating interest rates on your mortgage.  You will need to try to establish some more credit accounts. 

Both of these scenarios are tough..  I know, I've been there.  But it can be done.  Let me give you a few tips.

Your first step is to get your credit report and examine it carefully.  I do this regularly and generally find some errors.  Do this right away.  There are 3 credit reporting agencies and you need to get a report from each one.  Each of them will be slightly different.  You can get a free credit report from all three of them once a year by going to www.annualcreditreport.com.   This step is very important for you to do because there are so many errors on these reports these days

Correcting errors is usually easy.  You go to the website of the particular agency that has the error and look for an option that says "disputes."  The agency is required by law to check on the error and get back to you with an answer.  My experience has been that most of the time, since it is an error, the company reporting it can not prove that their data is correct and my report is corrected within 30 days.  Occasionally, it is a little harder and you have to persist by continuing your communication with the agency for a longer period of time.  Just remember, if it is truly wrong information, the company reporting it needs will not be able to prove it and the agency will then be forced to take your word and make the change on your report. 

Your next step is to pay down the credit card balances.  To have the best credit score, you need to have balances at no more than 50%.  30% is even better.  This is hard to do and will take some time, but it is worth it for your future credit worthiness. 

Start making all of your payments on time.  How do you do that?  Making a budget and sticking to it.  If this is impossible with your current spending level and income, start finding things you can cut down on or completely cut out, like movies, expensive coffee drinks, eating out, manicures, cable TV, newspapers and magazines, other services like online services, house cleaning, texting, those extra pet services you can do yourself, etc.  Start cooking more foods from scratch rather than buying them already prepared.  You might even need to start cleaning and ironing more of your clothes yourself.  All of this sounds harsh, but it will only be for a period of time and what is more important, your good credit or those movies every week?

A budget needs to reflect an accurate picture of your income and your expenses.  It requires some time and a lot of thought.  You might need to keep track of every penny spent for a week in order to get a really good idea.  Then you can decide what you can cut out.  If you are not realistic with what you really need to spend, it will be impossible to stay in that budget.  If you need to get those credit card balances down or you just are not making as much now, a realistic budget that trims away anything that you can manage to live without, is the only way to go.  Remember your reward, a better credit score. 

My last tip is one that may be impossible if you are underwater and even budgeting will not bring you out.  But it may have helped to keep you from getting into the position you find yourself.  I am talking about having some savings.  Think about it.  Most bad financial situations in which we find ourselves might have been prevented if we had savings to draw from.  And situations do happen. Jobs are lost, accidents happen that keep us from being able to work, deaths occur, houses don't sell for what we owe on them, and sometimes our health suffers and creates extra bills.  

Barbara Salisbury, Kenna Real Estate Co, Highlands Ranch, CO

www.barbarasellshighlandsranch.com

720-884-6040

 

Comments (3)

Mike Hendren
Mike Hendren Photography - Cloudcroft, NM

All great tips, Barbara.  I was just talking to a guy at a tech support website yesterday and we started talking about real estate.  He said he wanted to buy but needed to improve his credit.  I wish I had your blog post at that time - I could have sent it to him, but, of course now he's lost into the world of on-line anonymity.

Apr 02, 2009 12:57 AM
Thomas Conwell
Credit Technologies, Inc. - Wixom, MI
Mortgage PreFlight

Great article Barbara, You mention using http://www.AnnualCreditReport.com for obtaiing free copies of your credit files - you can also register any disputes though the same site.

When the repositories are advised of a pending mortgage, results are often available in as little as a few days.

We provide the step-by-step at http://www.credittechnologies.com/Ultimate_Credit_Repair.asp

Jul 07, 2009 12:44 AM
Barbara Salisbury
Kenna Real Estate Company - Highlands Ranch, CO

Thanks for the comments, guys.  And for the info link Thomas.

Aug 02, 2009 11:01 AM