The easy fix always sounds so appealing.
“Would you like to INSTANTLY repair your bad credit AND make 10, 20, even 30 THOUSAND dollars per month? By following our simple two-step method, we can show you how to repair your credit, get a TOTALLY NEW-CLEAN credit file overnight, and add AAA credit to your file instantly….The first step is showing you how to erase bad credit instantly.”
Whether the offer comes to you via email, the post office, or is hand-delivered to your door and tied with a gold ribbon, you should know that no one can instantly erase your bad credit. No one can give you a totally new credit file overnight. At least not legally.
The only person who can fix your credit is you, experts say. And it takes time and effort to make sure that credit errors are fixed, bad debts are paid off or negotiated, and other “negatives” (as the credit industry refers to credit problems) fade into the background. And, it takes time for you to build up a track record of good credit.
Good credit is important because it becomes the financial yardstick by which mortgage lenders (and auto lenders and just about everyone else) judge you. Whether or not you pay back your loans, and whether those payment are on time or not, is important in the long run. By maintaining good credit, you’ve eliminated one of the two top problems first-time home buyers have (the other is scraping together the down payment).
When planning to buy a home, it’s important to make long and short-term financial planning part of the process. Not having a grip on your personal finances can cause you to come up short when planning for a home purchase. According to the International Association for Financial Planning, some of the most common mistakes people make with their own personal finances include not making a financial plan, not focusing on the big picture, not keeping a handle on day-to-day cash flow, allowing lifestyle expenditures to increase faster than income, not having enough cash in reserve for emergencies, not having adequate insurance, buying more house than they’re comfortable paying for, and carrying credit card debt.
Credit card debt is a mountain of problems unto itself, says Terry Ruffalo, a spokesperson for Consumer Credit Counseling Services of Greater Chicago. CCCS is a nationwide non-profit organization with more than 1,600 offices that provide free or low-cost credit counseling, and classes on budgeting and home buying.
If you don’t take control of your credit problems, Ruffalo says, it is going to be impossible to buy a home. "But you can’t get fooled by companies that promise you instantly clean credit. It takes a lot of hard work to get there."
Though funded in part by credit card companies, CCCS believes it is each person’s responsibility to manage his or her own personal finances. To help consumers take a more objective look at their finances, CCCS of Greater Chicago asks consumers the following questions:
Are you making the minimum payment on bills? Are you using one credit card to make payments on other credit cards? Are you delaying one bill to pay another? Are you past due with basic living expenses, including rent and utilities? Are you taking advances on paychecks or depending on extra income to make ends meet? Are you thinking about a debt consolidation loan? Are you avoiding the mail? Are you worrying about your debts? Do you know how much you owe to creditors? Do you avoid going to the doctor or dentist because you can’t afford the visit? Are you asking family and friends for financial help?
“These questions are the warning signs of debt trouble,” says Catherine Williams, president of CCCS of Greater Chicago. “If you answered ‘Yes’ to two or more of these questions, it’s time to act.”
There are several steps you need to take to clean up your credit to the point it will be acceptable to a mortgage lender. In next week’s column, we’ll discuss how you get there.