EXERCISING YOUR CREDIT
LIMIT YOUR LIMITS
USE LEVERAGE TO YOUR ADVANTAGE
DIGGING OUT OF A CREDIT HOLE (Credit Counseling)
CREDIT STRATEGY DON'TS
CREDIT STRATEGY DO'S
CREDIT REJECTIONS
AVOIDING BANKRUPTCY
AVOIDING FORECLOSURE
Focus on being responsible to ensure that your credit is working for you instead of the other way around. Start by finding out about your credit via your credit report to know exactly what you're working with. Request your credit report yearly and inspect it thoroughly for any recent mistakes or older ones that should have already been removed. Report these errors immediately.
It is crucial not to finance something that is consumed or depreciates in value. You are not only burning your money, but usually paying interest on it as well. It's your credit: be selective with how you use it.
And don't overspend, pay down your balances and reap the rewards of a good credit standing. 
Just because you have $10,000 in available credit, that doesn’t mean it is your duty to spend every last nickel. If you find yourself in a credit bind, reduce the available credit amount to take the temptation away. Next, stop incurring debt; you can never pull yourself out if you throw yourself back in every chance you get. You may have the credit to buy that new flat-screen TV, but if it will put you in financial hardship for the next six months, reconsider. This doesn't mean you can never purchase some of these items, but it means you don't have to purchase all of them.
Start keeping track of your credit and cash purchases by writing down what was purchased and the amount. When you look back at the end of the week or the month, you may be surprised at how many purchases you decide were unnecessary. This is where you start cutting back and taking small steps out of debt.
Make concrete goals for the future, write them down and review them frequently. Your money suddenly has a direction it needs to go, and you can be more conscious of directing it to its proper destination.
In order to get out of debt, try striking a deal with your creditor to make partial payments, say 30-40% of the amount. Creditors often agree to these terms because receiving some money is better than no money at all. Once you pay off your debts, close all unnecessary accounts. Keep only a couple of cards with the most favorable terms to reestablish yourself as a responsible credit-holder.
Seek the services of a trained professional credit counselor, who can walk you through the language and technicalities associated with the financial world. Here are some things to be aware before you look for one.
Make sure you absolutely need a credit counselor to get your finances in order. Some lenders may equate credit counseling with filing for bankruptcy. If you plan to apply for a loan, be sure you know how your lender views credit counseling. That way you won't inadvertently shoot yourself in the foot if they see it as grounds for loan rejection. Ask around, do your homework, and be certain your situation is severe enough to warrant credit counseling.
Research and compare various services if you still believe credit counseling is your best bet (which it could very well be). There are many offers of "quick and easy" debt consolidation or "debt-erasing" programs that are just too good to be true. You want to be sure your money and credit are safe, so take your time in choosing a reputable credit counselor.
The counselor you choose may employ one of the following methods to get you out of debt.
- Debt proration, where the counselor negotiates new terms with your creditor, takes your paychecks and pays the creditors each month, leaving you with what is essentially an allowance. It's a bit strict, but if you are serious about getting out of debt, it works.
- Debt consolidation usually requires some form of collateral, such as home equity, and always involves challenging any marks on your credit report.
- Credit repair, which is kind of like a game of bluff. You challenge every negative piece of information on your report - even the valid ones - and since creditors have a set time in which to respond, you wait and see. If the creditor doesn't reply in the set time, the mark is cleared. It's risky, but nonetheless it’s an option.
- Don't Apply For New Credit - Opening a new credit account will likely change your debt-to-income ratio and lower any approved loan amount, thus affecting your ability to qualify for a loan. (Monthly debt payments divided by monthly income equals your debt-to-income ratio.) Discuss your situation with your mortgage lender before you apply for any new credit account.
- Don't Make Any Major Purchases - New purchases show up on your credit report, even the "three months, no interest, no payments" type. Lenders usually update your credit report during the application process and new obligations will show up. These "red flags" could affect your ability to qualify and will certainly add processing time to your transaction.
- Don't Be Late With Any Payments - Creditors have a rating system based on when they receive your payment. It is difficult for a lender to approve a new loan for someone who cannot meet current obligations. Late payments related to real estate carry more weight than installment or credit card payments. Payments due on the first of the month are usually considered late on the 15th with late charges assessed on the 16th day. Do not confuse the grace period with the due date. This payment would be due on the 1st, not the 15th of the month. A pattern of late payments affects your ability to qualify for a new real estate loan.
- Do Pay Off Long-Term Obligations - Mortgage lenders classify long-term debt as any financial obligation with 6 or more payments remaining. Monthly debt payments are added together when calculating your debt-to-income ratio. Before you apply for a mortgage, pay your obligations off or down to less than 6 remaining monthly payments.
- Do Collect As Much Cash As Possible - If you are short of cash for a down payment or have a poor credit report, you probably won't qualify for a new mortgage. However, with a sufficient down payment, there are B or C grade mortgages at a higher-than-normal interest rate.
- Do Prepare Your Personal Financial Statement - Visit your bank, ask for several blank financial statement forms and a home loan application package. Complete the loan package using a pencil with a good eraser. Include assets, liabilities, income and expenses. This helps you calculate your net worth.
- Do Get Pre-Qualified By A Lender - Since every situation is unique, be sure to meet with a lender first and thoroughly discuss your particular situation. If your credit, income & cash qualify you for a government, conventional or non-conventional loan, arm yourself with a lender's pre-qualification letter. Better yet, get "credit approved" by a lender before you start house shopping. This helps you to focus on the properties that meet the lender's criteria and match your ability to finance. Also, prior approval as a qualified buyer shortens your escrow time and could help you negotiate a lower purchase price.
If you are not able to get pre-qualified by an institutional lender, there are alternative ways to finance a home purchase.
What can you do if your credit is rejected due to a poor credit history?
You are legally entitled to a notice citing the specific reasons you were rejected. Valid reasons include too much debt, unsatisfactory credit history and insufficient income. Invalid reasons include vague responses such as "you didn't meet our minimum standards" or "you didn't receive enough points on our credit scoring system".
Evaluate these reasons and determine which are based on fact and which may be based on faulty information from your credit report. If there is an error, contact your credit-reporting agency immediately to start clearing it up.
Find out about the rules pertaining to the problem that prevented you from receiving credit or a loan and the right steps to take to fix it. Find out from your creditor what standards were used to measure your credit-worthiness and how you can improve your standing based on those standards. If improvements you make don't address the specific items your creditor bases his decision on, you aren't doing yourself any favors. The questions you ask and the information you obtain improves your chances of recovering your good credit in the most efficient way possible.
Bankruptcy should be your last resort, as it remains on your credit record for 10 years. This is quite a blow to people who have to wait a decade to be a homeowner. Make a concerted effort to apply the principles outlined above, and you may avoid bankruptcy altogether.
If you have no other choice but to file for bankruptcy, all is not lost. Explain your reasons for filing, usually unforeseen life curves such as unemployment, divorce, or illness. If, during the intervening years since you declared bankruptcy, your credit has been excellent, you may qualify for a modified loan (such as a no-document loan or an assumable mortgage). Learn your options and rights, and you may be on the road to homeownership.
When a lender forecloses on a home, they take legal ownership of the property and you have to move out. If you are in a situation where this may be an option, don't despair: there are steps to take to save your home.
Talk to someone in the foreclosure department at your mortgage company. Discuss mortgage payment options and explain your difficulty in making the payment. Provide your mortgage number and all documentation to validate your financial hardship, such as: evidence of loss of income, loss of employment, unexpected medical bills, and so on. Make it a top priority: if you can't reach your lender via phone, try certified mail.
Once you have taken this step, there are a few options the lender may take. The first process is called loan workout, which commonly uses forbearance or short sale.
Forbearance involves the lender extending the time until the mortgage payment is due and forgoing any right to take legal action against the debt. Once this period is over you are expected to repay the debt in addition to the regular monthly payment.
In short sale, the lender accepts a sale price of your home that could be less than the balance of the mortgage. The lender may then either "forgive" the portion of the balance not covered by the sale price or let you pay the difference over a period of time. However, the short sale does leave a black mark on your credit record.
If the lender will not consider these options, you may need to move out and work with your lender to minimize the losses as much as possible. If you know you are headed toward foreclosure, contact your lender sooner rather than later. The lower the amount of loss to the lender, the better for you and your credit.
Knee Deep In Debt
Fair Debt Collection
Credit And Divorce
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