Repairing Your Credit - Part 2

Friday night. John and Mary were visiting their friends Bob and Kim. Just last week they had promised the younger couple that they would share how they repaired their own credit problems.

John, always a get down-to-business kind of guy, asked directly, "Well, Bob, how bad is your problem?" After a glance from Kim, Bob responded. "It's not really that bad. We've been keeping up with the minimums on the credit cards. We're behind two months on the mortgage and I'm afraid that we're going to have trouble with this month's car payment."

Mary dug into the folder that she had brought with her. It contained brochures and notes from when the Smith's were in a similar situation a few years earlier. She pulled out a brochure from the Federal Trade Commission and began to read.

"A sudden illness or loss of your job may make it impossible for you to pay your bills on time. Whatever your situation, if you find that you cannot make your payments, contact your creditors at once. Try to work out a modified payment plan with your creditors that reduces your payments to a more manageable level. If you have paid promptly in the past, they may be willing to work with you. Do not wait until your account is turned over to a debt collector. At that point, the creditor has given up on you."

Kim suggested that it might be a good idea to contact their mortgage company. John supported her plan. "What we found was that creditors were impressed that we were willing to come to them with the problem. In fact, as I remember, our mortgage company allowed us to skip two months. Naturally the interest kept accumulating, but they didn't hit us with any late fees or penalties. I was surprised how nice they were about the whole thing."

He continued. "Whatever you do, don't let that car loan go delinquent. Most car loans allow the creditor to repossess the car when only one payment is missed."

Bob was bothered by the fact that they had recently been refused a new credit card. As a matter of fact, he was mad. "I can't believe the nerve! They said that there was something on a credit report that kept them from issuing the card."

"That's just the opportunity you need." John explained that if you're turned down for credit, insurance or employment because of a negative credit report you're allowed a free copy of that report as long as you request it within 30 days of being turned down. "By law, a credit bureau must remove inaccurate information. Even if you have to pay for it, it's probably a good idea to get a report once every year or two."

He went on to explain that you can't require accurate information be removed. Generally information can be reported for seven years and bankruptcies can be reported for up to ten years. "Think of it this way. If you were lending money to someone you'd want accurate information on your borrower."

Mary went on to explain that when they were checking their own credit report they found some bad information that was not correct. "We challenged the data. After they verified that we weren't at fault they removed it immediately."

Kim asked how long it had taken the Smith's to get out of trouble. "Oh, it took awhile. But, we were in much deeper than you are. We realized that we probably should get some help.

"We found that some universities, churches, military bases, credit unions and even housing authorities offer free or low cost counseling. We picked one who helped us work with our creditors and then got us started on the budget that we still use today."

Mary underscored John's point. "I think that the budget was the key to the whole thing working. It showed our creditors that we were serious about solving the problem. They could see that we were working to keep our spending within our income. Not only that, they could also see how much we were allocating to debt repayment. They knew how long it would take us to pay them back."

By now, Bob and Kim had begun to formulate a plan for solving their own debt problem. They knew that it wouldn't be easy to face their creditors. But they also knew that the alternative was worse and would only make the final solution that much harder.

After the Smith's went home that night, Bob and Kim put the outline of their plan down on paper. It included four basic steps. First, avoid credit repair companies that want 'up front' money or promise a new credit identity. Next, prepare a realistic budget. Then admit your problems to your creditors and show them your budget and plan for repaying what you owe. Finally, get help from a non-profit agency if you don't feel competent to prepare and present your own plan.

That night Bob and Kim got their first good night's sleep in weeks. By deciding to face their debt problem head-on they knew that they were taking the first step towards a healthy financial future.

Do you have a time or money saving idea that wasn't included in this article? Please send it to tips @stretcher.com. We get the best ideas from our readers!

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