Oran Hall | How to protect and rebuild your credit

QUESTION: I lost my job four months ago, and prior to that, I had acquired debt in an attempt to create income-producing assets. Little did I know about managing money! I bit off more than I could chew. Not having a job now, I have only one working asset and a business that’s in its creeping stages that sustains me and my two boys. I received an email today that’s frightening as I was hoping to clear all my arrears by now. However, having received that email, I am concerned as to how I protect or rebuild my credit.

– Frank

FINANCIAL ADVISER: A major problem with incurring debt is that the ability to service it can change dramatically overnight; job loss, sickness, and major family catastrophes are some factors that can bring about this unwelcome situation.

It must be challenging to sustain yourself and the boys from a young business. The risk is that drawing from it could seriously compromise its viability or limit its ability to grow. Not knowing much about your affairs, it is difficult to specifically address your situation, but I can suggest some ways to deal, generally, with how to protect and rebuild credit because it is important to have an excellent credit report and credit score.

Your credit report is a summary of your credit-related experience that has been submitted to the credit bureaus by the entities authorised to do so. It includes your accounts, that is, your payment history on real estate, loans, student loans, hire purchase, and revolving credit accounts.

It also includes public records and credit inquiries. Public records include bankruptcies, court records, tax liens, and monetary suits and judgments. Credit inquiries include requests made by lenders to see your credit report. The information submitted to the bureau remains on your credit report for seven years.

Your credit score is a numerical score derived by converting the quantitative data from the historical credit information on a credit report. Your credit report shows your credit history, and the score is an analysis of your credit history. They make a loud statement about your credit worthiness.

Your credit score changes when your credit report changes. The report changes when new information is added to it. Such information may be debt repayment, assuming new debt, debt retirement, and the removal of information after seven years. The last point suggests that it may take time to bring about a significant change in your score if you have a poor record.

It is important to maintain your creditworthiness for a very long time because it has a strong bearing on your ability to borrow and, ultimately, the interest rate you are able to borrow at.

To repair your credit, sell some of your assets, if possible, to pay down debt, avoid making new applications for credit, and make contact with creditors. Make changes to your spending by creating a credible budget to reflect the new reality, and find ways to increase your income, thereby improving your ability to service your debt. If you have to tighten your belt, so be it, and if you need help, get professional counselling from an independent financial adviser or financial coach who does not sell financial products.

To protect your credit, pay your debts on time, using automatic payment arrangements as much as possible. Monitor your credit score. You can request a copy of your report each calendar year at no cost and additional reports at a charge of $1,000 plus GCT, or $1,500 plus GCT for each additional report, depending on the credit bureau from which you request it.

Avoid co-signing or guaranteeing loans for other people. You are equally liable for the debt as the primary borrower, whose failure to pay principal and interest on time and in full will affect your credit negatively. Co-signers are generally required because lenders believe that the primary borrower is too risky to do business with.

Additionally, do the following to help maintain or improve your score: check your accounts for errors, sort out any errors on your account, set up payment reminders, and avoid closing out old credit card accounts, if possible, as the long credit history they carry can be helpful to your score if they have been serviced well.

Considering that information provided by credit bureaus can be used to facilitate loans and other credit facilities, to facilitate financial and commercial transactions, to make underwriting decisions in insurance, and to make employment decisions, it is important to establish and maintain a good credit rating and to move with dispatch to repair it when it has been damaged.

Oran A. Hall, the principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. finviser.jm@gmail.com