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Champion Mortgage® understands that not
everyone can have a perfect credit rating. If for some reason you have
fallen behind on some bills or loans, or your credit history shows a foreclosure,
bankruptcy, auto repossession, or other types of bad credit, there are
ways to clean up your poor credit standing. First, let's determine if
you have bad credit problems that may need some fine-tuning.
What is less-than-perfect or bad credit?
Most lenders consider you a higher credit risk if your
credit report suggests any of the following resulting in your ability
to only apply for bad credit mortgages:
- Inability to follow successful financial behavior
- External events that created financial stress, such as
losing your job
- Lack of knowledge about financial and credit matters
- An insufficient economic cushion due to a lack of savings
Or you may be determined to have bad credit if you
have any of the following on your credit report:
- Revolving credit (credit cards): any payments 60 days
or more past due and more than two payments 30 days past due
- Installment credit (auto loans): any payments 60 days
or more past due and more than one payment 30 days past due
- Housing debt (mortgages and rent): any payments past
due.
In all categories, all late payments must be explained
when applying for new credit.
Some other things associated with poor credit problems
include:
- Recent credit inquiries
- Overextended credit
- Paycheck garnishments
- Liens
- Bankruptcy
With all the bills you have each month, it's
difficult to keep track and make sure they are all paid on time. There are
many reasons people fall into debt or establish bad credit ratings, but
there is no reason to stay in debt. With dedication and patience, you can
clean up your bad credit, get control of your finances and your future.
If you fear your credit rating has slipped into a bad
credit range due to financial difficulties, here are some tips to help
you get a fresh start and establish good credit:
Don't ignore credit problems.
If you fall behind in payments or have difficulty
meeting the necessary payment amount, talk to your lender. Many will listen
and help you arrange a solution. The sooner you face it, the more lenient
most lenders will be, and the sooner you can accomplish your financial
dreams.
Check your credit report.
Your personal credit report reflects your financial
behavior and is therefore used in the loan approval process. Get a copy
of your credit report to accurately assess your current credit file. Find
out if you have good or bad credit, make sure the information listed is
accurate and up-to-date, and correct any errors you may find. Clean up
and improve your personal credit report by adding any additional information
that can enhance your stability (i.e., if you have lived or worked at
the same place for a length of time) and show the ability to make payments
on time. If you've amassed bad credit due to a unique situation, you may
write a 100-word statement explaining your circumstances and send it to
the credit bureaus. They will add it to your credit file.
Get credit in your own name.
Don't let someone else's bad credit history influence
your own. If you are married and your spouse has had financial problems,
be sure that you establish good credit in your name alone, but also help
repair your spouse's bad credit problems. Also, try to avoid co-signing
a loan for someone else. You will be held financially responsible if the
other person fails to meet his or her obligations.
Check the rates and fees that accompany your credit
cards.
The rates will most likely change on variable rate
cards and they might have gone up over the past year. The average interest
rate is around 18%, but there are many offers with lower (and much higher)
rates. Also, check if there is an annual fee or if the card's annual fee
has been raised.
It's best for your credit rating if you pay your bill
on time each month. By accruing late charges you can negatively impact
your credit file and increase interest charges. Although it is tempting
to use your credit cards to pay for something when you don't have the
money in your pocket, if you can't afford it, don't buy it, and avoid
potential bad credit behaviors.
Think about getting a home equity loan if
you are a homeowner and have accumulated some equity in your
house.
This type of loan can help you pay off all of your
credit card bills as well as other personal loans such as car payments.
You'll save money because you'll be borrowing at a lower interest rate
and paying off old debt immediately. You may also find that your finances
will be easier to manage because you'll be making one payment rather than
five or ten which may prevent late payments and bad credit behavior. Finally,
you may realize added tax savings because the interest may be tax deductible.
Consult your tax advisor about these deductions.
Pay more than the minimum.
A minimum payment is usually 2-3% of the outstanding
credit card balance. Instead, pay as much as you can each month. Create
a budget and stick to it. Cutting back even just a little bit will help
you save hundreds, or maybe even thousands, in interest payments alone.
Plus, you will get out of debt and on with your life faster.
Transfer your balances to a low-interest-rate card.
There are so many credit card offers, just be sure
you read the fine print to get the best deal. Find a card with low or
no annual fees, a low interest rate and a 25-day grace period. Be aware
that transferring your balance to one card can get risky because the rate
may rise unexpectedly. Often you'll start with a low introductory rate,
but after six months the rate will increase to the full credit card rate.
Pay attention to your monthly statements and if the rate increases, shop
around for a better arrangement. Finally, check with your bank first to
determine if any new debts you charge will be financed at the standard
credit card rate or the low introductory rate.
Obtain a secured loan.
Your bank may ask you to deposit an amount (usually
between $100 to $1,000) to use as your credit limit. The bank will then
issue you a credit card. The deposit assures them you will honor your
debt. If you don't, the bank will most likely confiscate your deposit.
Be sure to ask about rates and potential application and processing fees,
and if such fees will be refunded if your application is denied.
Avoid additional credit inquiries.
An inquiry is generated when a creditor runs a credit
report for you (such as when you apply for a credit card). Inquiries typically
remain on your personal credit report for two years. Therefore, by running
unnecessary reports, you send out a signal that others are looking into
your credit history. If a large number of inquiries occur in a short period
of time, lenders may think that you either are overextending yourself
by taking on more debt than you can actually pay back or are applying
for more credit because of financial difficulty.
Don't max out your credit cards.
The ratio of available credit to your total credit
balance is very important. Your credit limit is based on your income,
your current debt and your credit history. Be familiar with this amount
and keep your spending beneath it.
Hopefully these tips can help you clean up bad credit and put you on the
path to establishing a good credit rating. For additional information:
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