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How
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Credit
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How to Improve Your Credit
If you have had credit problems, be prepared to discuss them honestly
with a mortgage professional. Responsible mortgage professionals know
there can be legitimate reasons for credit problems, such as unemployment,
illness or other financial difficulties. If you had a problem that's been
corrected and your payments have been on time for a year or more, your
credit may be considered satisfactory.
If you are currently in excess debt, there are four ways to control it:
1. If your credit is not in terrible shape, you can reduce your other
expenses, even if it means making hard choices or changing your lifestyle
to fit your income. Consider selling a second car, taking equity out of
your home, applying for a non secured signature loan, obtaining a loan
from a relative, selling your home and paying off your debts with the
proceeds and then renting, cashing out your 401K/retirement benefits or
selling family heirlooms, jewelry, etc.
2. If your credit is already damaged or one of the above isn't an option,
go through Consumer Credit Counseling Services (CCCS). Check your yellow
pages for the local number. CCCS may be able to help you pay off your
debts as if you were in a Chapter 13 bankruptcy, but you don't actually
file for bankruptcy.
3. If CCCS won't take you, you may want to consider bankruptcy. Claiming
Chapter 13 bankruptcy takes longer than a Chapter 7, but your credit will
end up in a little better standing. Chapter 13 bankruptcy gives you up
to 5 years to pay off your debts. The disadvantage is that you're in bankruptcy
for up to 5 years plus your credit report shows your bankruptcy for 7
more years after you have finished paying off your debts.
4. If you are so far in debt that you can never repay it, then the best
solution may be a Chapter 7 bankruptcy. A Chapter 7 bankruptcy is the
least desirable from a credit standpoint, but you are typically out of
bankruptcy in 6 months and you don't have to repay any debt. The disadvantage
is that this shows on your credit report for 10 years from the date of
filing your bankruptcy. Creditors are starting to tighten their credit
requirements, and you may have a tough time getting future financing.
If your debts are under control now, but want to improve your bad credit
history, the most important factor is to make your monthly payments on
time. Use pre-addressed envelopes enclosed with your statements to mail
your payments and call the company if you don't receive your usual statement.
Also send your payment as early as possible if you carry a balance. Most
companies calculate interest on a daily basis, so the sooner they receive
your payment, the less interest you'll pay.
Don't procrastinate. It's the day your payment is received that counts,
not the postmark date. Give the post office sufficient time (five business
days is a good guideline) to deliver your mail. Late payments may mean
late fees, higher interest, and/or a negative mark on your credit report.
Never send cash. Open a checking account if you don't have one, or spring
for a money order and keep your receipt. Finally do not forget to tell
your creditors your new address when you move.
If you are worried about making payments, make a list of your debts and
when the payments are due. Contact your lenders immediately if you think
you will have trouble meeting the monthly payments to arrange a payment
schedule.
Taking money from your retirement account or tapping the cash value of
your life insurance policy to pay bills or living expenses may have serious
implications you haven't considered, so try to get advice from an expert
before you take any major financial actions.
Credit cards can be invaluable in a crisis, since they allow you to charge
items and pay them off over time. But they can also be dangerous if you
aren't careful and charge more than you can afford. If you do use credit
cards, choose those with the lowest interest rates and pay them back as
soon as you can to cut your costs.
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Rates vary per state
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