Rebuilding your Credit - Resolving Negative Items
A bad credit history is something that can make your life very difficult. A bad credit rating, for example, prevents you from being able to obtain a mortgage, a loan for your car, and even something as commonplace as a credit card. And in those rare cases where someone with a bad credit rating is able to secure some form of credit, he will be forced to pay outrageously high interest rates and fees.
When it comes to a bad credit rating, however, most people prefer to take a back seat. They have heard so many horror stories about the hardships of repairing one’s credit that they prefer to ignore the matter out of fear. But rebuilding your credit is not as hard as it may seem. All it requires is a little discipline and a pro-active approach.
Address negative items. The first, and perhaps hardest part in the credit rebuilding process is addressing and resolving outstanding negative items in your credit report. This task seems so hard because most people look at their entire credit report and think they have to solve everything in one go. Realize this - that is simply not the way credit rebuilding works. What you want to do instead, is recognize that it is a slow, eventual process that is much like a healing wound. When it comes to outstanding negative items in your credit report, there are several ways in which you can achieve resolution. The resolution strategy you use will depend on the overall nature of the negative items in your credit report.
Catching up. If the majority of your negative items in your credit report are fairly young and constitute relatively small amounts, the best strategy would probably be to catch up on your late payments. This means you will have to cut down on your living expenses as much as possible and just try to close the book on each item. Start with the oldest one first and work your way to the latest one. Know that lenders view older, but resolved negative items much more favorably than they do current, unresolved ones.
Negotiating. If a large part of your credit report is made up of negative items that are relatively young but constitute larger amounts, the best strategy may be to re-negotiate the terms of debt with each of your lenders. If you settle your debts, even for a fraction of what they are really worth, it is still a whole lot better than not dealing with them at all. Most lenders prefer to allow their debtors to pay off their loans at a discount or with a more lenient payment schedule than not at all. A negotiated negative item will also do more for your credit rating than an unpaid debt that has been written off by a lender.
Bankruptcy. If most of the negative items in your credit report are old and have been delinquent for a long time, catching up on them or re-negotiating their terms is usually difficult, if not impossible. In this case, filing for bankruptcy may be the only viable solution. Although bankruptcy will stay on your credit report for as long as ten years, it does allow you to “draw the line” on your financial failure; it will also show future lenders that you had financial problems in the past but chose to address them. Bankruptcy, unlike charge offs, do disappear from a credit report in time.
