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Now that you understand the basics of the credit system and how to make it work for you, let's walk through a real life example and see how it plays out.
The following is an example of Sarah, a young woman with poor credit who took steps to reverse her credit situation. - Sarah: Age twenty-seven, single, five years work experience, is buying a house and has absolutely no experience with credit or home loans; also has poor credit with a few later payments because of a job loss four years ago.
The following is Sarah's step-by-step process:- Step 1: Research: Sarah, realizing that her credit is probably not good and that she has no credit experience whatsoever, is very concerned. She needs to research the subjectsof credit and credit repair so that she can become an informed consumer.
- Step 2: Credit Reports: She writes to the three main credit bureaus to get her credit reports.
- Step 3: Reading Credit Report: Once she receives the reports, she looks to see if there are any errors. She finds one error from a creditor from two years ago. She seeks assistance from her bank officer on evaluating her credit reports.
- Step 4: Analysis: She has found that there are a few problems on her credit reports that need to be cleaned up. Her lender has assisted with advice on how to contact creditors and clear up the problems, how to pay off her one outstanding debt, and how to correct the error on her credit. She also had a job loss four years ago, and the lender suggested she write to the credit bureaus and explain this extenuating circumstance, which caused her to be late on several payments.
- Step 5: Pay Old debt: First, she pays the outstanding debt. She has talked to the creditor, who has agreed to write a letter to the credit bureaus stating that the debt is paid.
- Step 6: Write Credit Bureaus: She writes and then hand-delivers the letter to the credit bureaus. She also mails the letter for safety sake. She wants to get this accomplished before she starts on the more subtle extenuating circumstance of her job loss and the resulting late payments on her credit.
- Step 7: Organization: She organizes her documents to prove her job loss and the debt she had paid that was listed in error as unpaid.
- Step 8: Write Credit Bureaus - She writes the credit bureaus again with documentation on the extenuating circumstance of her job loss.
- Step 9: Assessment: She makes a full assessment of her status by getting new copies of the credit reports. Three months have gone by - and she is now ready to go back to her lender.
- Step 10: Other Options: She is also considering a loan from her family to use as collateral in a certificate of deposit.
Now look at a few more examples and try to determine how the needs of each might differ. - Beth: Age sixty, no kids, one year work experience, married
Answer: needs to develop her own credit history apart from her husband's; she has no personal credit history at all
- Linda: Age thirty-five, one kid, five years work experience, married.
Answer: she wants to buy a house in her name; she has developed her own credit history over the past 3 years and is rated "A" – no problem
- Sue: Age twenty-four, no kids, two years work experience, not married
Answer: she has decided to buy a house but is finding that she does not have enough credit history with major credit cards; she has only has one year of a major card and needs to show a pattern of payments of two years before she can define her credit. She cannot buy a house right now.
- Aimee: Age fifty, two kids, twenty-seven years work experience, divorced
Answer: she got into credit trouble in her divorce; did not realize that her husband's debts were her responsibility; she is now doing long term repair on her credit
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History of the credit system