You will be surprised to know that the credit card debt (excluding mortgage, students loans, medical bills or any other debt) of an average American family amounts to over $8,000, shared out by 16 different credit cards. So, in the following article, we will discuss how you can get out of this financial mess and build up a good credit score.
In order to make it more comprehensible, we will try to illustrate it through the real life instance of how a family managed to survive through debt:
Recovering from Debt
Katherine and Tom are a Washington, D.C. based two-career couple, who decided to construct their own house in 2001 and for this purpose, they decided to check out if they are eligible for a mortgage. The time seemed to be the most appropriate as the mortgage rates were extremely low at that time. But they were shocked to discover that they were eligible for only two to three percentage points higher rates than the prevailing one, as they had very bad credit scores, i.e., between 580 and 620. So, they decided to improve it.
The first step in this direction was to find out the main cause of their low credit score. They took out their credit scores and credit reports, and soon they discovered that their credit reports contained a lot of redundant, outdated and useless information. Several accounts were already closed; a number of seven-year-old late payments were still listed on the reports.
Solving The Credit Problem
Then, Katherine and Tom mailed certified letters to all concerned credit bureaus and disputed the information. They also noted down which items need to be updated and which ones should be deleted. They also telephoned or wrote to different creditors to ascertain that their records are updated.
Their credit score was low also due to their 12 credit cards, which were utilized up to 50 percent of their limit or even more than that. It, consequently, resulted in their higher debt-to-income ratio, which plays an important role in determining credit scores.
In order to bring it back to acceptable range, they decided to cut down their useless expenses and started depositing the saved money in the money-market account. Later, they used this money to clear their credit cards dues. Within the next nine months, they cleared 11 of 12 credit cards and also closed seven of them. Gradually, they abandoned the use of their credit cards all together and saved extra $10,000 to finance their home.
After accomplishing these corrections, they contacted their lender again, who was very surprised to see the new credit scores. Now, they were in the 650-730 points category. So finally, Katherine and Tom were able to qualify for the three-year adjustable rate mortgage at 4.95 percent, which could have been as high as 7 percent with their earlier scores. In this way, after a nine months effort, they were able to save $400 per month on their mortgage installment, which amounts to about $5,000 every year
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Sarah Dinkins is an Expert Loan Consultant at Badcreditfinancialexperts.com where she helps people to repair their credit and to get approved for home loans, unsecured personal loans, student loans, consolidation loans, car loans and other types of loans and financial products.
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