I meet a lot of people that have a goal of homeownership, but have no idea how to achieve their goal. Many times they were not taught the importance of paying their bills on time, and therefore they have poor credit. They are consistantly bombarded by advertisements promising ‘credit repair’ and they desparatly want to become homeowners. What should they do?
Should you pay a credit repair company to assist in increasing their credit scores?
No! What most credit repair companies promote is the “disputing” of collections that are actually your legal debt to pay (they also dispute late pays and even credit pulls). The problem is even if they are able to get a collection removed from your credit file, it can be just as easily added back in the future if it really is your legal debt. One collection company can sell your account to another and the process starts all over again. That leaves you back at square one. Now you wasted a ton of time and money and you have nothing to show for it.
What should you do to repair your credit?
I always provide my clients with a FREE tri-merge credit report pulled by a mortgage lender. This credit bureau includes all their credit being reported by Experian, Trans Union, and Equifax. Then, I teach them how to read their credit report Together we carefully review each account and verify the validity of it. While you may not initially recognize the collection agency that shows a collection against you, you still need to contact them to see if in fact that debt is yours. Many times a collection agency will sell debt to other collection agencies.
Once you have a full understanding of what you owe and to whom you owe it you can establish your road map and budget. The goal is to pay off (or settle in full – yes, it’s ok to do that as well) every one of your collections. That way, they can’t come back to haunt you in the future.
I have paid off my bad debt – is that enough?
Once you have resolved your past issues you usually need to establish new credit. Due to the poor credit history many people start with a secured credit card. A secured credit card is a credit card that is secured by your money. You want to have a credit limit of $300, and you always want to have a balance on the card between $1 and $5. Never higher and never lower. The goal is to show you can use credit responsibly each and every month.
If you really want to have better credit you need to:
*Know where you stand right now.
*Resolve any old credit issues.
*Establish new credit and pay as agreed.