Dealing With a Credit Score after a Big Problem

Tip #29: Start repairing your credit right away after a big financial upset.

A big financial problem is an emotional as well as a monetary burden. Plenty of debtors feel so terrible about their financial problems and so uncertain about their money that they go into deep denial, refusing to think or work on their financial problems. This is likely to only make the problem worse.

Everybody suffers from financial difficulties once in a while and every professional in the field of finance - from loan managers to bankers - knows this. Plus, financial professionals - including lenders - want your business and so are willing to work with you to help you solve your problems.

If you have had a financial problem, or are even headed towards one, start working on repairing the situation right away. If your credit is suffering because you have not paid some bills, for example, don’t make it worse by waiting until you are reported to a collection agency (by which time your credit rating will have taken an even worse hit). Instead, work on paying off your bills or arranging a payment schedule right away.

Tips #30: Consider co-signing for loans - but consider well before taking the leap.

If you have very poor credit scores following a bankruptcy or other disaster but need to get a loan, consider getting a co-signer. If your co-signer has assets or a better credit record, you may qualify for a better loan rate.

However, be wary - if your co-signer refuses to make payments, then both of you will suffer the credit fallout. Co-signers share responsibility for loans and credit - both of you will have worse credit scores if one of you does not pay.

On the other hand, if your cosigner has good credit and makes payments, then the co-signed loan can actually boost your credit score.

Tip #31: Don’t overlook bankruptcy.

A bankruptcy will affect your credit score more than just about anything. Worse, it will affect it for many years. In the first few years after a bankruptcy, you may not be able to get loans at all.

In short, a bankruptcy is a legal proceeding that either forgives you of your debts or allows you to pay off just a small fraction of your debt. It will nearly ruin your credit rating at first, but it will also allow you to dig out from overwhelming debt and reestablish a good credit rating again after years. A bankruptcy will no longer show up on your credit report after ten years.

If you are very seriously in debt and have no way of repaying your bills, a bankruptcy can help you by stopping collection call agencies and other problems. Also, if you have been very negligent in paying your large debts, your credit rating has already likely suffered greatly.

While a bankruptcy will depress it even further, at least it will give you the chance to repair your credit by giving you a “clean slate” free from large debts.

Tip #32: Don’t choose bankruptcy as an easy out.

Bankruptcy is a serious credit problem - it is not just a “ding” on your credit report - it is a huge red flag to lenders. After a bankruptcy, you will be ineligible for credit cards, many types of credit and will even be told what you can and cannot buy. The procedure of bankruptcy can also be draining. Bankruptcy should only be chosen as a last option if you really require your debts to be forgiven because you have no way of repaying them.

Tip #33: Learn from your mistakes.

Everyone makes some credit mistakes sooner or later - it is very rare for someone to go through their entire lives without at least a few dings on their credit risk record. Don’t beat yourself up over your mistakes - even if they are large ones. Instead, learn from your mistakes by analyzing them. Think of your credit mistakes as clues which can help you in the future to avoid the same problems:

-Do you develop credit problems because you overspend while shopping?
-Are you so disorganized that you forget to pay bills?
-Are your bills simply too large for your current income?
-Do you routinely get overcharged for things and fail to notice until much later?

Knowing what your mistakes are and finding solutions to the problems can go a long way towards helping you develop a good credit risk rating.

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