Getting Credit and Re-establishing Credit

By Jonathan E. Shimberg and Linda R. Crohn

Establishing or re-establishing credit can be a long, involved process, but it is important to do. Unless you prefer to pay cash for everything, having a good credit history will allow you to purchase a house, car, appliances, clothes, vacations, and other things on time. Here are some steps you can take to help establish or restore a good credit rating.

CREDIT REPORT

First, get a copy of your credit report. This can be done by calling a credit bureau. The three largest in Chicago are Trans Union, TRW and Equifax. The cost can run anywhere from $8.00 to $25.00. A credit report that shows l's means that a person is paying their debts within 30 days of receipt of the bill. A credit report that shows 2's means that payment is being made within 30-60 days. A credit report that shows 3's and 4's meaning a "slow pay" or "no pay" which means a poor payment history. Check to see if the report is accurate.. Are credit card companies reporting the timely payments you are making? Have you paid off a bill but the credit report is still showing a balance due? You can challenge anything that is not accurate by letting the credit bureau know that there is a problem. The credit bureau must verify the information with the creditor within a reasonable time or they must remove the contested information from your report.

There are businesses who will help you develop a plan to pay back your bills and improve and restore your credit rating. Make sure that you will actually be paying off principal and not just interest. You should check the business' credentials carefully to make sure it can help you as it does charge a fee for its services.

Sometimes people have a poor credit rating because of an event that effected their financial situation, such as divorce, bankruptcy, illness, or loss of a job. You have the right to send a letter to the credit bureau explaining the situation, which they must attach to your credit report. If a creditor asks for your credit report, your letter will be sent with it. The letter should explain what caused you to pay your bills late and how you have corrected the problem.

STEADY INCOME

It is almost impossible to obtain credit without showing steady income. Child support and maintenance will be considered as income if you wish. Open a checking and savings account. If you had bad credit in the past, sometimes a small neighborhood bank is more willing to work with you. Making regular (even if they're small) deposits into your savings account will show stability. Join a credit union if possible. They tend to be more liberal in lending money than banks. They also charge less interest. Go to your neighborhood stores, i.e. grocery, drugstore, and see if they will open a charge account for you. Local stores tend to accommodate good customers.

SECURED CREDIT CARD

Apply for a secured Visa or Mastercard. There are banks that will give you one of these cards if you put money in a savings account with their bank. This allows you to have a credit card with a credit limit up to the amount of your deposit in the savings account. If you do not pay your bill, the bank will have the right to take the money in your savings account to pay it. If you do pay on time, make sure that this will be reported to the appropriate credit bureaus so that you can establish a good credit history with them. You should also ask whether you can eventually apply for an unsecured card with the bank, once you have shown that you are creditworthy. You can write for a list of banks that give secured credit cards at: Bankcard Holders of America, 560 Herndon Parkway, Suite 120, Herndon, VA 22073.

BANK PROGRAMS

There are bank programs that help people establish or re-establish credit. They will lend you, under the right conditions, for example, $2,500.00 payable at $95.00 per month over three years. The $2,500.00 loan is deposited into a Certificate of Deposit in your name and it earns interest for three years. If you do not pay the loan they can take the CD for repayment. But, if you do make all your payments in a timely manner, in three years you will have approximately $2,900.00 waiting for you in an account and will have excellent credit with the bank. The repayment of the loan with interest comes to approximately $2,900.00 Check with your bank to see if it has a similar program or what programs it has that may help you.

Once you establish or re-establish credit, make sure you continue to make your payments on a regular basis. Invest your money wisely. Be sure your credit report reflects your new credit history. Use your new credit history wisely. You are off to a brand new start!

This pamphlet is for informational purposes only. You should consult with an attorney regarding your specific situation

©1997 SHIMBERG and CROHN

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