What is the best way to Rebuild or Repair bad Credit?

Ok if you already have bad credit you will first want to know the total amount owed to all the lenders/creditors put together, this will help you determine whether its a better decision to repay or simply file for bankruptcy ( I know what some of you are thinking "no bankruptcy" I am suggesting that you also read the post titled “when is the right time to go bankrupt”).

If you have determined that your total debt is manageable and decide to pay back the companies the best thing you can do is to contact each of you lenders and explain your situation and arrange a payment plan that they are ok with, and more importantly that you will be able to afford . (doing this will stop the negative monthly reports to your credit bureau.)After that the trick is not to acquire any more debt and continue to pay what you agree to pay until the debt is gone. Please note that if your debts are with collection agencies, when your are done paying back it is a good idea to contact Equifax and Trans Union and obtain a copy of your credit report to ensure that the collection item is mark PAID or Removed from your credit bureau.

Lets move on and assume that you have followed what you just read and your debt are now paid down or paid off.. at this point one of 2 things should happen:

1. If the majority of your debt was in third party collections most likely you would not have gain much rebuilding benefit while you were paying back the agencies. Therefore you will now need to kick start the building by obtaining a low limit secure credit card from a company like Capital One. Use it properly, try not to spend more than you can easily payoff within that month, if things get tight please please don’t miss any of the minimum payment not even by 1 day. (1 day late in the loan world is usually considered 30 days late and will report on your credit that way). Continue using that Card for about six months and you may notice an increase or an offer to increase your limit, accept it but continue to use the same principles don’t spend more just because they gave you more.. Continue that for another 6months then go to Citi Financial or Wells Fargo (in Canada in the USA it is usually better to try smaller companies such Credit Unions) and apply for a small loan of $500-$1000 you should be approved as long as your income can support the loan.. Keep that loan for 6 months, the easiest way on a $500 loan is to pay back $400 by the end of the 1st month (don’t even use it just take it out and put it aside), then continue to pay about $20 per month for the next 6months then pay it all off.

It should now be almost 2yrs on your rebuilding journey, don’t apply for anything else that you don’t have to. (not even a cell phone). Continue using the credit card as mentioned earlier until you pass the 2yr mark.

AT THIS POINT LENDERS WILL BE CONTACTING YOU WITH PRE-APPROVAL NOTICES BECAUSE YOU HAVE NOW ARRIVED IN GOOD CREDIT LAND.

p.s. WHEN YOU GET THE OFFERS DONT BE STUPID AND GET BACK IN SAME SITUATION- please read the topic about maintaining your good credit.

by Omari Whyte

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