How do I fix my credit?

In My Humble Opinion
1

Alright, my problem is that I pretty much screwed up my credit for no good reason. I am looking for suggestions on how to fix it, or build it up as high as possible from now on.

The way I screwed my credit up in the first place was pretty much sheer stupidity. I just let my bills slide for no good reason. In fact, most of the time I could have paid them with no problems at all, I just ignored them out of absolute stupidity/laziness.

My situation has changed a bit now. I just graduated college, so (i hope) I’ll be working full time soon, and have some decent money in the future to use to build up my credit.

The credit cards I had/have were one regular MBNA Visa card, a Best Buy card, and a department store credit card. The Visa card had a balence of $3000 at its worst, and is now down to like $100. The Best Buy card is at like $450 right now, which is the highest balence its been. The department store card actually got shut down at about a $260 balence (of which probably only $60 is actual purchaces) which I paid off today in full. All of were ignored at times, for stretches as long as a few months (maybe even 4 or more) at a time.

I plan on having these balences down to $0 each within a month, at which time I will have no debt of any kind. The department store card is shut down, but I will still have an active Best Buy card and the Visa card at that time.

I am only 24 years old, so I do have time on my side as far as fixing my credit. I don’t think I’ll be in the market for a house for at least several years or more so that is good. I will wanting to rent a place in the near future, and probably get a new car within a year (assuming a job) if possible though. I do have someone who could co-sign for me if necessary.

I have heard that paying bills regularly is one thing that builds up your rating. I did just get a cell phone, will paying that bill help my rating? Should I keep small balences on a credit card or two to make regular payments on?

So, how should I fix this situation? What should I do to get my credit at least back to average? What kind of time frame am I looking at here? Any advice?

PS From now on I will be paying each and every bill on a regular basis no matter what. I realize how stupid I was in the past, and I have definitely learned from my mistakes.

2

You’ve taken a good first step, and you managed to not have all of your credit accounts closed. This is a good sign. I imagine that you’re really not in that bad of shape, assuming you get a full time job and can continue to stay ahead. This is a great time to have credit problems, as interest rates start so low that your “higher” rates aren’t necessarily going to be all that “high”, historically speaking.

Get a credit report, just so you can see what sorts of “bad” things get put on it.

Credit agencies like it when you pay off loans on time. One way to do this is to keep a small balance on a credit card, but you’ll be paying a fairly high interest rate on it, so this is not necessarily the best approach. Assuming you have a job, I’d get a car loan. The interest is fairly low, and it’s a payment that you can make every month.

As for buying a house, if you have the income they can pretty much find a loan for anybody. Some loans (with the lowest rates) you’ll have to have 7 good years with no late payments for, but there are other fairly good ones that only look at 5 years, and lots that will just charge you more interest.

-lv

3

Keep your debt proportional to your income. Pay at least the minimum on time, every time. A manageable car loan, as already noted, is an excellent idea. You may not qualify for the 0.0% finanacing, but not so many years ago 8% on a car loan was the best anyone could get.

It will take a while for your derogatory credit to drop off your report, but follow the rules from here on out and by the time you’re ready for a house, you may be in good shape.

4

Oh, and paying a cell phone bill every month will likely not show up as a positive, as it isn’t a loan, so the phone company doesn’t report your payments to any agencies. But not paying any bill on time hurts your credit rating, as any company that you owe money to will report late payments to the credit agencies.

-lv

5

I work in a mortgage brokerage, and I look at credit reports every day. The above advice is very good. LordVor is correct, a cell phone will not help you.

If you screw up and miss your deadline, don’t freak. Sure, you’ll have to pay the late fee, but you only get a “late” notch on your credit report after a full billing cycle.

My best advice is: pay the bills you already have on time, and don’t open any more accounts. After you have everything paid off, you could start looking into doing the more risky things that do improve your credit, like carrying a small balance on a credit card.

6

If you have a close friend or family member that has good credit, always pays their bills on time, and has a few credit cards in use, ask if they’ll list you as an authorized user on their credit card accounts. Not that you’re asking to use their accounts, just that you’ll be listed on them. When you get listed as an authorized user, their “good” credit activities on that account will also get reported on your report.

One big caveat: when you go for loans, be sure to specifiy to the lender which cards aren’t yours, as it can give you pretty poor results on the Debt to Income ratio calculation if they automatically assume that every card listed on your report needs to be taken into consideration as your own potential debt.

7

The only thing I can add is: Give yourself a pat on the back, you’ve got it under control. You’ve learned what you needed to learn without a serious financial crash and burn, and that’s more than a lot of people can say. :slight_smile:

8

When I got an apartment, they only looked at whether there were unpaid judgements against me, or closed and unpaid accounts. Based on what you’ve stated, qualifying for an apartment shouldn’t be an issue.

YMMV.

9

Check out the major credit rating companies’ websites. They are:

www.experian.com
www.transunion.com
www.myfico.com

The fee for retrieving your credit score/rating is $10-$15 (IIRC), and they will explain some “strategies” for improving your score as well.

PAY EVERYTHING ON TIME!!!