Looking for Loans: Secrets You can Use to Rebuild Your Credit

By Dorothy G Bunce
The exact details of what damages your credit score are a big secret.  Credit scores are based on a point system.  Points are added when you pay debts on time and paying and points are subtracted when payments are late.  Other factors that cause you to lose points include owing large amounts of money, making only minimum payments, making no payments, a debt being sent to a collection agents, repossessions and even voluntarily returns, foreclosures, lawsuits, applications for new credit, and tax liens.  Filing Bankruptcy also causes a substantial loss of points on a credit score.  As a Bankruptcy attorney in Las Vegas, I feel I have an obligation to monitor how much damage bankruptcy does to my client’s credit and to help them to make the best of a bad situation.
There are two steps to repair and rebuild your credit.  To repair, you must eliminate negative information.  To rebuild, you create positive information.
A Bankruptcy “Discharge” eliminates most kinds of debts, giving an individual a “clean slate” as far as owing money.  If someone used to owe tens of thousands of dollars in credit card debt, once a Bankruptcy is completed, they no longer owe these amounts.  Someone will no longer lose points from their credit score each month for this reason.  They also don’t lose additional points each month because of late payments.
The Bankruptcy remains as a notation on a credit report for 10 years.  But credit is usually granted based only on a credit score, not what the credit report says.  Very few creditors actually look at the actual credit report itself and most will never see this notation.  Yes, filing Bankruptcy will cost someone you points on a credit score.  But the loss of points is only a one time event!  Bankruptcy will not cause points to be taken away from the credit score month after month like owing a large amount of debt or making a minimum payment does.  That is way some people insist that Bankruptcy is a good way to rebuild your credit.
It is irresponsible to claim that Bankruptcy is a good way to repair your credit.  Attorney’s who make this claim are being deceptive in order to increase their business at your expense.  There is only one good reason for filing Bankruptcy, and it is because you your debts are overwhelming and you can’t reasonably pay them, no matter how much you might try.  There are other ways to repair credit that are effective without going through Bankruptcy.  So even though we can use Bankruptcy as a tool to rebuild your credit, it is a tool you will want to use carefully and only in extreme circumstances.
Negative information on your credit report can often be eliminated just by disputing it, even if it is true.  But be careful not to blatantly lie when you file a credit dispute.  For example, if an entry says you had a vehicle repossessed, you dispute it by checking the applicable online selection or by sending a letter to the Credit Bureau saying that you dispute the item.  By disputing an item, you want to also ask the Credit Bureaus to investigate whether or not the item disputed is true.  The Credit Bureau will then contact the creditor and asks them to verify the claim.  If the Credit Bureau does not receive a response within 30 days, they are supposed to remove any disputed item.  If the item is correct and the creditor is able to verify it, it will not come off.  No problem – just wait a while and try again!  It is easier to eliminate older information than it is recent items because when information is old, the creditor may put the records about the transaction into storage whether they can no longer access it.
You create positive information to your credit report by having existing accounts and paying them on time or early.  If you have existing debts, such as a home mortgage or a car loan, when you obtain new credit, pay on time or early.
Rebuilding credit requires changes in the way you spend.  To pay on time, you have to have money available.  To have money available requires you to change your lifestyle.  This is not as easy as it sounds. The reality of the economy today is that no one has it all, no one lives like the characters we see on TV who must have jobs paying them unlimited money.  Little things, like a cup of coffee, a burger, or even a bottle of water, add up and stop you from having enough for big things.  Late charges, bounced check fees, and interest on payday loans just make a bad situation worse.
Your credit score is based on formulas that make no sense to us as consumers.  No one considers your income or family size.  No one allows you any credit for having health problems or whether you take care of other responsibilities.  The score is an arbitrary judgment of whether you are likely to pay your debts.  You are judged on how often you move and how often you change jobs.  Successfully paying off a small account for a one-time purchase gives you just as many points as paying month after month on a larger account.  So if you have open accounts with a zero balance you haven’t used in a while, consider using them for small purchases.  This will earn additional points on your credit report.
It does not help your credit score to repay old debts.  Once an account becomes delinquent or goes to collection, it won’t help to pay it off – instead, it actually hurts your credit because the length of time the derogatory information remains is measured from the date that you last paid.  Once you are late, that goes in the report and doesn’t change unless you are able to successfully remove it through the dispute process.
I am often asked if getting married helps or hurts your credit.  Marriage itself does not affect credit worthiness.  Unfortunately, when you apply for credit together, the person with bad credit will hurt the person with good credit.  Until the repair process is completed, it is better not to apply for joint credit and to keep your credit separate from your new spouse.
Attorney Dorothy Bunce began representing clients in consumer Bankruptcy cases in Nevada in 1979.

2 Responses to "Looking for Loans: Secrets You can Use to Rebuild Your Credit"

  1. InstallmentCredit   April 22, 2014 at 2:32 am

    Credit score affects our lives very much and many people are interested to improve it in order to take advantage of some financial services. I have forgotten about my credit score when starting to use InstallmentCredit. And now without any difficulties I am able to solve any financial issues.

    Reply

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