Creditors in Your Closet - debt management

Black Enterprise, Oct, 2001 by Leslie E. Royal

If you don't have any luck there, try a secured credit card. You will have a savings account with your own money gaining interest and will use it as collateral for your own credit card. Typically, whatever you have in your savings account is what your credit line will be. Therefore, it can be as high as you would like. Make sure that you have the company report it to the credit reporting agency. Many secured card companies do not. "Most no money down, no security deposits for bad credit are rip offs. They will extend a $400 credit line to you, but charge $350 immediately in various fees," says McKinley. "The best route is the security card. It is very important in rebuilding your credit."

Jessica Hanford, 38, knows the value of rebuilding credit firsthand. In 1987, Hanford found that she could not get a new car loan because of delinquent accounts including Sears, Macy's, Zales Jewelry credit cards, and a previous car loan. "I knew better and knew the importance of good credit. But I did not know that it would follow me for seven years. I got caught in that trap and my defense was to say it wasn't so bad. But when I started trying to make major purchases, I realized that was not the case," said Hanford.

In 1993, she was able to rebuild her credit when she paid a credit repair company in West Palm Beach, Florida, to clean up her credit report. Although Hanford was well aware that she was paying money to a company to do something that she could essentially do for herself (see sidebar), she felt it was worth it.

Hanford now enjoys her home, newly financed through FHA, and vows to instill in her 7-year-old daughter, Tenia, the importance of good credit. Goodjiones vows to do the same with her daughter Kayla, 9. Says Hanford, "Bad credit can happen to the best of us. The important thing is to work hard to get your credit straight and keep it that way."

12 Ways to Create a Positive Credit History

1. Pay your bills in full and on time.

2. Set up a budget and live within it.

3. Pay attention to debt-to-income ratio. Creditors prefer that no more than 20% of gross pay be spent on credit, excluding mortgage.

4. Maintain one major credit card.

5. Apply for only the credit you need. Too many recent inquiries may indicate outstanding debt that has yet to appear on your credit rating.

6. Maintain balances far below your credit limit.

7. Show stability. Creditors may consider length of residence and employment, savings accounts, and whether you own or rent.

8. Contact your lenders if you fall behind. They may work with you. Never ignore them.

9. Establish credit on your own for the first time and start out small.

10. Don't use credit repair clinics to remove inaccurate information. You can do that yourself for free.

11. Do not co-sign for anyone else.

12. You and your prospective spouse should review credit reports and openly discuss finances before saying "I do."

Source: Experian Credit Reporting Agency