Repairing Bad Credit

The problem of bad credit is probably the biggest malaise to hit America recently. Clearly, a lot of people are reeling under the mountain of debt and suddenly as the market starts wagging a finger in the direction of those with bad credit, there is an urgent need to improve things lest you want your external financing olive branch to be cut off. But let me tell you this, repairing bad credit is a no mean task and it requires superhuman effort to save you from drowning in your debt.

How to Repair Bad Credit

To repair one's bad credit generally means that he wishes to improve the credit score. The credit score is a number, released by the credit rating agency, which essentially decides your creditworthiness. It generally does so by affixing a weightage for each of the following criterion.

• Payment History
• Amounts Owed
• Length of Credit History
• Types of Credit Used
• New Lines of Credit

It involves somehow hitting all of these factors, positively. So the line of action is pretty clear: reduce the amounts owed and improve the payment history.

Pay Off All Debts
Du-h. Classic point here. Structure your cash flows in such a way that importance is given to systematically reducing the level of debt. Plan how you intend to reduce your debt by asking a reputed credit counseling agency for help. A debt counselor will examine your income, help you split the discretionary expenses from the non-discretionary ones and help you create a structured plan to reduce the amounts you currently owe.

New Lines of Credit
It is said that should you prove your creditworthiness over different lines of credit, the agencies see it positively and hence that helps improve your credit rating. So if you open new lines of credit - short term loans etc - and pay them off in a timely manner, not only will you have a little deficit financing to help you pay off the existing debt, but you also prove your mettle on different lines of credit. But to do this well, you might need to learn a bit more about financial management.

Old Credit Cards
Old, paid off credit cards are the one surviving relic of the time when you DID pay your bills on time. So why get rid of a memoir from a happy time? Emotional attachments aside, old credit cards, if still active show up on your credit report as dues that have been paid. So the credit rating people will see those too and feel better about improving your credit rating.

Build Assets
If, of course, you happen to have some money left over after paying off your debt, ensure that you use it intelligently and invest it. Or at least put it aside for a rainy day. Building assets means that you have something by way of security to offer to your lender and the lender might warm up to you that way. Hence building a strong asset base is pretty crucial.

Keep in Touch With Lenders
Of course the cherry on the cake would be if you were in cahoots with your lender and ensured that should you have a contingency and not be able to pay one or two of the monthly mortgage payments, the lender ought not to go up to the credit rating agencies to report you. Most people tend to run away, hide under the table and otherwise bar the door shut when the lender comes along. Bad move. By reasoning and effectively negotiating your position with the lender, you will gain his favor and more importantly avoid the consequence of him reporting you to the credit agencies.

As you can see, improving credit history is no mean feat and takes a real financial overhaul. It is probably the exact opposite of what you have been doing till date. Hence I say that repairing bad credit is a tough, tough job. But by focusing on the eventual results, you can probably muster the courage to do so!