SOME FIXER-UPPER STRATEGIES

I’ve even seen that it’s not always the people that you’d expect. I have clients who have built tight financial systems – and it can still occur to them. In other words, it’s not always an issue of being a “big spender.”

Add to that inflation and supply shortages – and well, it’s getting even easier to be that proverbial frog in the kettle, when it comes to credit.

So, what to do? Well, you can happily charge and put off paying your balances, but eventually, that kind of spending (and denial) catches up with you – and then there are much harder conversations to be had. So, maybe today can be the opener for that kind of conversation… if it’s needed.

And if you want insights to getting on top of your credit situation, let’s open up the conversation, shall we?

Janet Behm's
"Real World" Personal Strategy Note
Fixing Up Your Credit Situation
“Remember that credit is money.” – Benjamin Franklin

Mysteriously turned down for a loan? Bump up against your credit limit a lot? Find yourself paying only the minimum balance on your credit card bill month after month?

Congratulations: You might well have broken credit. How do you fix it – and make sure you don’t get into this hole again?

Know the score

Seeing as how the average debt on a U.S. credit card exceeds five grand, a credit hole seems easy to fall into. A lot of missteps can hurt your credit score, including spotty paying of bills, recent bankruptcies, using too much of your available credit, or even having too much of just one kind of credit (such as having only a mortgage).

The first thing you have to do is find out where you stand, using your credit score. The most common is the FICO® score, courtesy of a credit-score software company started decades ago as Fair, Isaac, and Company. Scores are generally between 300 and 850. The higher the score, the better it is. (FICO® scores have generally been creeping up in recent years). Credit bureaus – Equifax®, Experian®, and TransUnion® are the big three – keep your score and give it out to those who make decisions about lending to you.

Your credit report is free once a year. You can get reports from all three of the credit bureaus at AnnualCreditReport.com. This report has your basic details along with how long you’ve had accounts, number of payments made, missed and late payments, and other facts. After 7 to 10 years, some bankruptcies and accounts drop off your report and no longer affect your credit score. A good strategy for tracking your FICO® score throughout the year is, get your ‘one-a-year’ free report by scheduling the next request every 4-months, cycling through the 3-credit bureaus.

You also want to look into your credit utilization ratio, which is how much you owe compared with how much credit you have available. Divide the sum of all your revolving debt by all the credit available to you, then multiply that by 100 to get a percentage.

The lower the percentage, the better your credit. You generally want it below 30%.

Fixer-upper

So, you’ve got your score – and it’s waaaaay too low. What now?

First off, check the report for goofs (theirs, not yours). They do happen, and you need to get them off your report pronto. You can dispute something on your report over the phone, online, or through email with any of the credit bureaus. Keep a special watch out for ID theft, the ‘flavor of our century’ when it comes to financial crime.

Assuming there are no problems, it’s repair time. No quick fixes here, you understand: Patience, diligence, and discipline are your best tools.

• This may sound like calling the sky blue, but… make payments on time. On-time payments boost your score and your credit standing. Circle the date on the calendar, set an alarm on your phone, tell a friend to remind you. But get this done.
• Attack those overdues. If your goal here was just saving money, high-interest loans would be your primary target. Repairing credit, however, means whittling those “past-due” notices first. If you can’t pay the bills off, contact the creditors/lenders to see about a payment plan.
• Become an authorized user on someone else’s credit card (someone else with good credit themselves, of course).
• Open a secured credit card. You use it to buy just like you would with any credit card – except you put down a security deposit to open the account.
• Keep your balances low and intend to pay off loans early. (Make sure there’s no penalty for doing so.)
• Balance transfer credit cards can help you shift debt to a lower-interest option. Beware the fine print (we’ll say this again in a minute), but these can work if you do the math.
• A LITTLE KNOW FACT: When an account is paid in full…keep the account, rather than closing it. It makes the algorithms happy!

Good moves or bad?

A couple other options get a lot of ink and can be good ideas – but do your homework.

One is a debt consolidation loan, which basically pools all your debt. Instead of scads of payments to different creditors, you just make one payment to the lender of this loan. They can work if debt complexity is one of your problems. Start with your bank or credit union. Online lenders can also work. Before you put your name on any dotted line (virtual or otherwise), do the math to make sure the terms of the loan are better than what you’d get by just paying off your debt. Here’s a link for an online credit calculator like this one.

There are companies that claim they can help with your credit card debt. Some are good no doubt, but again, do the math. Repairing bad credit takes time – a lot more than some of these companies promise. Watch the fine print carefully.

Sometimes it can seem impossible to get your credit back in good standing. When you dig yourself in a deep hole, it’s hard to see the way out. But that’s one reason I’m bringing articles like this your way. I want to help you find the way out and save yourself headache (and wallet ache) moving forward.

BE THE ROAR not the echo®

Janet Behm