Consumer Credit Repair: The 5 C’s
To figure out how to do consumer credit repair, there are five areas lenders look at. They all start with C: character, capacity, capital, collateral and conditions.
Character
Character refers to how well lenders can trust you. If they know you personally, that’s great. Oftentimes, this is determined by how well you’ve made payments on time.
Your credit report will show 30, 60 and 90 day delinquencies. Credit card companies are often the most aggressive about reporting. As you could guess, negative entries count against your credit score. You’ll want your report to show all accounts in good standing for working to repair consumer credit.
Capacity
Capacity means you have enough cash flow to handle the debt you’re seeking. They look at how much money you have coming in each month as well as how many expenses you have. Lenders want to make sure you have enough money at the end of the month to make your payments.
Capital
Capital shows that you know how to manage money long term. It’s a look at your net worth. Lenders don’t want to give money to people who need it. They want to lend to people who have shown to be able to use it wisely to build up more assets. That’s a better lending risk for them.
Collateral
Collateral is something to secure the debt. Typically, loans are secured by property such as real estate or vehicles. If there’s something to get back should you default on the loan, there’s less risk to the lender.
Conditions
The conditions are market and economic conditions outside your control. With the recent economic recession, lending guidelines have become more strict.
Smaller concerns such as your local banker’s mood that day also fall into this group. While we’d like to think your banker is always going to be professional, he’s human too.
When you’re looking to repair consumer credit, remember the five Cs: character, capacity, capital, collateral and conditions.
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Credit History Repair: What If It’s Beyond Repair?
How do you know if you can still do credit history repair?
While everyone is unique, the pattern usually goes this way: people get credit cards before they’ve learned how to manage them. They overspend on them. They get more cards. They max them out and borrow from one to pay another. Finally, they can even make all the minimum payments and they start falling behind.
Maybe you’ve been through that already. The good news is you still have options. The main credit history repair options are bankruptcy, debt settlement, debt consolidation, credit counseling or learning to manage your debt better.
People often worry how making any changes will affect their credit. The more important issue is the mountain of debt that’s eating your financial future. With too much debt, you won’t be able to get any more credit anyway. Plus it’s disrupting your cash flow.
The most dramatic and final option is bankruptcy. This is good for people who have only a few assets and much more debt than they could ever pay back. It does cost something to get going and will impact your credit more than anything else.
A great option for people who have too much debt but a steady income is debt settlement. Instead of making your monthly payments, you save that money and offer your creditors lump sum settlements in the range of 20-40% of the total. Be sure to know the laws in your state and get everything in writing. If you have too many assets, your creditors might attempt to sue you or garnish your wages.
Debt consolidation is where you pay off all your loans with one big loan. Usually the only place to get a loan that big when you have too much debt is from your home equity. The danger is that people often spend on their paid off accounts again and end up with twice as much debt. Then their home is in jeopardy because now they have twice the payments to keep up with.
Credit counseling is a complete waste in my opinion. They take a monthly fee from you and negotiate a lower interest rate for you. Then the credit card companies pay them for keeping you making your payments so there’s usually a conflict of interest. You can negotiate your own rates and avoid the mark that would go on your credit with a third party intervention.
The last option is to learn to manage your spending better. Negotiate your rates as low as you can. Then pay the minimum on all of your accounts except the one with the highest rate. Once that’s paid down, use that as leverage to negotiate better rates still or open a different account with a better rate. Take the money you were using to pay that one and add it to the minimum payment on the next highest rate account. Repeat until you’re at a level of debt you’re happy with.
While your current situation may look dismal, there are always options. Figure out what you really want to accomplish and get started.
Find out how to do your own credit history repair without an agency. Visit www.creditrepairsecrets.org for free help.