Bad Credit Repair Plan

You haven't reviewed your credit report in years, and why should you?  You've never had a blemish on your credit report, but that was before your company went under, before you started saving for that "what if" scenario that you thought was never going to happen...even before you got to take that 2-week long vacation in the bahamas.  Yet, here you are today with bad credit.  It's been a few months, but you were able to find a job, but how do you get out of this sea of debt and correct your credit score?

It's a very depressing situation to go from years of perfect credit to bad credit in a matter of months, but there is hope.  You were diligent in past to keep your credit score at the highest possible level.  With some planning and patience, you can be at the top of your financial world.

Grab your cup of java, get your pc warmed up, and let's review your bad credit repair plan. 

1. Bad Credit Repair Plan - Are You Ready To Committ?

Really?  "I do."  What's that...we've never met?  You are already committed...?  Oh, well.  I thought I had devised a sure-fire way to get a marriage proposal or at least a committment.  I suppose I should tell you what you're committing to before I ask for the committment.  It's not nearly as scary as a wedding proposal.... 

I've  asked you for a committment to go through the steps I've worked so hard to lay out for you.  No, you don't have to sign a contract, send any money, or even participate.  But, if you have bad credit and are in search for the cure, then you're about to receive the proper prescription - your bad credit repair plan.

2. Bad Credit Report Rating -How is Your Financial Report Card?

The first step of devising any plan is to assess the current situation.  So, you must find out how your financial health is doing...check its pulse, so to speak.  A healthy rate is anything above 660.  Could it be better?  Sure, the best rate you could have is 800, but if you're like most it's closer to the 660 mark.  If I'm right, then you've come to the right  place.  

So what is your financial report card?  The technical name is credit report.  It is similar to a "report card" that you received while you were in school.  It is a tool used by the financial industry to see how well you have performed in the credit world, and how well you treated your previous lenders.  To read a more detailed description of your what your credit report is be sure to read my credit report guide.

3. Bad Credit Monitoring Service - Is It Necessary?

Monitor your credit.  Why?  You will know if your credit rating is bad once you apply for credit.  While this is true, it may not be accurate.  Identity Theft is on the rise and the only way to help prevent this crippling crime is to monitor your credit.  You can monitor your credit on your own, which won't cost you a thing, as long as you have the patience, or you can subscribe to a monitoring service.

4. Bad Credit Score  - How Does Your Score Compare?

Third, you need to understand your credit score.  I have a credit score of 660--I know it's bad.  What else is there to understand?  Well, there are actually 2 very important things you need to understand.  The first being how is your credit score calculated.  Without knowing what factors are figured in, you won't know which factor to focus on.  Your credit score is a combination of the following factors:

35% - Your Payment History
30% - Amounts Outstanding (Amounts Due)
15% - Length of Your Credit History
10% - Types of Credit Used
10% - New Credit

The other important thing you need to know is how long each factor affects your credit score.  For example, bankruptcy will affect your credit for 10 years, whereas a bad payment history will only affect it for 2 years (assuming steps are taken to rectify the timeliness of your payments).  I've written a guide on Understanding Your Credit Score that you may want to read.

5. Bad Credit Personal Budget - You're Broke, Who Cares?

Ok, now we're to the fourth step, which is to create a budget. You should create a budget to know how much income, if any, that you should have available at the end of each month.  If you're not sure how to create a budget, then don't despair.  I've created a step-by-step guide to walk you through the process.  Knowing how much money you spend on actual debt payments and how much you blow on unnecessary items will help in determining how you should proceed in your debt elimination quest.

I have a friend who makes well over his monthly fixed expenses (house, car, utilities, etc), but because he won't make a budget, he has to borrow a minimum of $100 once or twice a month to cover bills that are due before his next paycheck. Did I mention that he was paid weekly?  It saddens me to think how much he could save each month, not to mention how much interest he could avoid on those monthly short term loans, if he had only set up a budget. 

6. Bad Credit Alternatives to Personal Bankruptcy

Next, you should know what alternatives are available to you.  The first thing that came to mind was probably bankruptcy, but depending upon your financial situation you may be able to get out of debt without filing Chapter 7 or 13.

The options available to you include the following:

• consumer credit counseling services or "CCCS"
• credit cards
• home equity loan
• car title loan
• unsecured loan
• payday loan
• debt settlement services
• bankruptcy (Ch 7 or Ch 13)

To find out more detailed information on each option listed above, be sure to read my article "Personal Bankruptcy Alternatives" to help you determine which alternative would work best for you.

7. Debt Free for Life, Not Just for Right Now

Finally, you must make a plan to remain debt free for life You had to have a plan to get to this point, remaining debt free is no less of a challenge. Set some goals for yourself.  Write them down.  Visualize them until you achieve each one.  Stick to your budget. Know your limitations--if you don't want to cut up the credit cards, then don't carry them with you. Please read my article on being "Debt Free and Fancy Free".

Conclusion:

Well, that's all there is to your bad credit repair plan. Not all that difficult is it? If you want to find out more, I recommend these articles about repairing your credit and keeping it in good standing:

Your Bad Credit Report Guide
Your Bad Credit Score Calculation Guide
Your Bad Credit Counseling Guide