Rebuilding your credit score
In a previous post, I discussed how a credit score is calculated. What happens when your credit score is too low? A few years ago I helped a friend rebuild her credit score from the bottom. In college, she had a serious medical problem that wasn’t covered by health insurance, and went to the hospital associated with her college. She couldn’t pay, and the college, her college, sent the collection agencies to work her over and destroyed her credit. Being the type of person who felt bad about jaywalking, my friend went into a panic, thinking she could never escape. Seeing this happen, I couldn’t let my friend be treated this way, so I helped her work out a plan:
1. Turn off the collection agencies. These people were hounding her around the clock and at work, which had the effect of making her so fearful that she wouldn’t face her debt. I told her that she has the right to tell them to go away. She started doing this over the phone and by letter and slowly the calls stopped, giving her room to think straight. Congress has given people many rights in dealing with collection agencies, some of which are listed here.
2. Start paying off the debt. Either directly contact the people you have debts with or work through a credit counselor to create a debt management plan. A debt management plan is a plan for paying off your debts. Keep in mind that most people you owe debts to are happy to get at least some of the money back or all of the money back over a longer time period. This sure beats getting almost nothing if you go into bankruptcy. Finding a good credit counselor can be difficult — some are worse than the collection agencies. Here are some guidelines on finding a good one.
3. Rebuild your credit score. Pay your bills on time. Get a secured credit card from a reputable bank. A secured credit card is where you pay a deposit to the bank that is equal to your credit limit. If you are unable to pay your credit card bill, the bank takes your deposit and turns off the card, so there is little risk to them. The upside is that it’s a real credit card and is reported to the credit agencies. After a year or two of using the secured card properly, you should be able to get a regular unsecured credit card that will allow you to finish rebuilding your credit score.
I’m happy to say that my friend was able to completely rebuild her credit after a couple of years and is now a well paid professional. I can’t say that she’ll ever donate money to her college, though!
