Rebuild or Establish Credit
Know your creditors and their terms
Whether you’re looking to establish a credit history, improve your credit rating, or just stay in good standing, you will have the best chance for success if you maintain good communication with your creditors. Staying in contact and being familiar with their policies will help you avoid unexpected problems and costly errors that can stay on your record for years.
 Preventing problems
- Know the rules, credit terms, and penalties for your account
- Pay your bills on time – the primary factor of good credit management
- Keep balances low on credit cards and revolving debt
- Don’t open a lot of accounts at once
- Try to limit inquiries to your account
- Check your credit report for accuracy
Dealing with difficulties
- Call your creditors and talk to them directly – you may be able to arrange a payment schedule
- Stop using your credit cards
- Dispute inaccuracies in your credit report
Disputing and correcting errors
- Mark up a copy of the report indicating every suspected error
- Send a letter, with any supporting documents, to the credit agency explaining your dispute and requesting an investigation
- Send a copy of the letter to the creditor
- Once the error is fixed, ask the agency to send a corrected report to everyone who got the inaccurate version
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What you need to know about bankruptcy
There are circumstances where bankruptcy may be the only option for ever getting out of debt, but it should always be your last resort. The penalties can be severe – it can tarnish your credit rating for years and can even affect employment. And a variety of debts will not be forgiven anyway, such as alimony or child support, taxes, educational loans, fines or penalties, and debts incurred by fraud.
The 2 most common types of bankruptcy
| Chapter 7 Liquidation |
Chapter 13 Debt Adjustment |
- Allows you to exchange assets for discharging debt
- Affects credit score for 10 years
- Takes 4 – 6 months from filing to final discharge
- Can be filed only once every 6 years
- Stops most garnishments
- Assets you get to keep varies by state
- Easier to recover from: 99% of filers end up debt-free
- The better option for people with few assets and little income, but a lot of debt
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- Temporarily blocks foreclosures and collections while you complete a 3- or 5-year payment plan
- Payment plan must be approved by the bankruptcy court and trustee
- The amount you have to pay is determined by how much you have, not how much you owe
- Applies different repayment terms to different types of debt
- Affects credit score for 7 years
- Can be filed once every 6 months
- Must be under prescribed debt limits to file
- Helps you keep your home while you pay off debt
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If you decide to file for bankruptcy
The number one priority for anyone thinking of filing for bankruptcy should be getting a good attorney. The rules are complicated and the penalties for mistakes can end up costing even more than the attorney’s fees. Enlist the help of an expert in the specific bankruptcy rules for your state.
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