DIGITAL DIALOGUE
July 29, 2015Galette released by Saints
July 29, 2015
Virtually no one who has even tried to buy a car or house can deny the value of having good credit.
This is especially true for those with poor credit scores who want to make those big ticket purchases but can’t because a bad credit history follows them into banks like a dark cloud. Many of them may feel overwhelmed by the debt, but according to professionals in the field, anyone can fix their credit on their own.
“It’s really becoming a problem, especially for a lot of folks now that we’re coming out of a recession,” said Robert Marrero, a prominent bankruptcy attorney in New Orleans. “Generally, when people begin to see hope again, that’s when people want to begin to clean things up.”
Marrero said that while people are laid off or mired with medical bills, the impetus to fix their credit isn’t there, but when times are good, like when someone has a new job, people become interested in fixing their credit.
Next to defaulting on home mortgages and student loans, missing credit card payments represent a huge portion of American consumer debt. The average U.S. household credit card debt is $7,327, according to a report issued by NerdWallet.com. When only looking at households that have missed months of payments, the average debt jumps to $15,706.
Young adults who don’t know how to use a credit card properly are the ones who most commonly fall into debt traps, said Chip Ourso, executive vice-president of
Commercial & Retail Banking at Coastal Commerce Bank. He said that many of them will use their newly acquired credit cards to make daily purchases or pay bills and fall behind on their payments.
“Too much availability of credit to our younger folks who don’t know how to manage it” leads many of them into debt, Ourso said.
Ourso said the very first step to repairing one’s credit is to look at their credit report. Make arrangements to pay
those debts on a timely basis. Pay them down, but remember that having debt is not inherently bad.
“You need to have reasonable amounts of credit card debt. A lot of folks carry near their annual salary in credit card debt,” Ourso said. “You really want to have revolving debt really no more than 30 to 60 days of your income.”
Marrero recommended not taking on any new debt and paying all one’s bills on time for one year. And avoid any hard credit checks. A hard credit check is done anytime one applies for credit to buy a big ticket item, like kitchen appliances or a car. Each hard credit check lowers your credit score.
If one’s reason for failing to pay a debt comes with a sad story, Marrero suggested they call the creditor and ask them to consider their hardship in deciding whether or not to report the debt to the reporting agencies.
Also, examine your credit report for errors. A 2013 study by the Federal Trade Commission found that 5 percent of Americans had errors on one of their credit reports issued by the three consumer credit reporting agencies, Experian, Equifax, and Trans Union, that would make buying big ticket items more expensive.
“There is a very high percentage of folks with the wrong stuff on their reports,” Marrero said. “And that can affect your ability to get a car loan or a home mortgage.”
Marrero, who was once the bankruptcy trustee of New Orleans, said it even happened to him. He was speaking with his banker while applying for a loan at the bank. His banker, who knew him very well, asked if he’d filed for bankruptcy.
Of course, Marrero had never filed for bankruptcy, but his credit report said that he had. He examined his credit report and found a number of errors that were somehow transferred to his credit report from cases he had handled.
But the primary objective is to pay debt down to reasonable levels. If possible, one should talk with creditors about debts that could not be paid due to exigent circumstances, job loss, or family tragedy.
Byron Gonzales, owner of Credit Repair Nerds in Houma, is a credit consultant who guides clients through the process.
He said his clients, who are doing the same things outlined in this story, generally see their credit scores improve anywhere from 50 to 100 in the first 45 days of on time payments and responsible spending.
Gonzales said 80 percent of his clients see a complete deletion of negative marks on their credit reports within six months.
Ourso said the process “is not an overnight fix.”
How long it takes to repair one’s credit depends on how much is owed and how fast one can pay it down.
If there is any equity in one’s home, they could take a loan out against it and the process will go faster.
Gonzales, whose company is a member of the Houma-Terrebonne Chamber of Commerce, said people should be wary of “quick fix” services claiming to repair bad credit fast.
“There’s a lot of companies out there that say they can do this or do that, but it’s not conceivable,” Gonzales said. “For someone who’s expecting an overnight fix, it’s not going to happen overnight.”
Good credit is necessary to make a major purchase. The average U.S. household credit card debt is more than $7,000, according to NerdWallet.com.
