Friday, August 06, 2004
By Patricia Sabatini
Pittsburgh Post-Gazette

Q: I've ruined my credit over the years just by being late on things, and I don't make a ton of money. Then I bought a house, and I have a lot of bills, and my house is probably not as affordable as I should have bought. To make a long story short, I was able to pay off all debt. I have no debt now except for my mortgage. It's been a few years, and in this whole time frame, I haven't been able to get any credit anywhere. I'm being responsible, having a house and paying off all debt, but it's not helping. Do you have any advice?

-- L. H., Pittsburgh

A: It can take a long time to remove a black cloud hanging over your credit history. For one thing, delinquencies stay on your credit report for seven years. If you paid off your debts only a few years ago, the demerits are still there.

Think of your credit history as a balance scale. Right now there are lots of black chips weighing down the negative side. You need to add some red chips to the positive side to begin tipping the scale in your favor and convince creditors that you're a good credit risk. Simply paying off old debts is not enough.

As you're finding out, earning positive chips isn't easy. How do you rebuild credit when no one is willing to be the first to extend it to you?

The first thing you should do is get a copy of your credit report from each of the three major national credit reporting agencies (TransUnion, 1-800-888-4213; Equifax, 1-800-685-1111; and Experian, 1-888-397-3742) to look for inaccuracies that may be unfairly dragging down your credit rating. If you find errors, get them cleared up by filling out dispute forms that should be included with your credit reports.

Under certain circumstances, the credit bureaus must give you a copy of your credit report for free, as when the particular bureau's report was used to deny you credit in the last 60 days. Otherwise, it will cost you about $40 to get all three reports.

Once that's done, consider applying for a couple of "secured" credit cards, which are designed to help people with bad credit prove they can be responsible.

Most secured cards require you to make a deposit equal to the credit limit on the card to serve as collateral. Generally the deposit ranges from about $200 to $500 or more. If you avoid messing up, by paying on time and staying under your credit limit, you'll get your deposit back when you cancel the card, similar to getting your security deposit back on an apartment if you don't damage anything.

Besides putting up a deposit, you'll have to pay an annual fee and probably will be hit with higher-than-average interest rates.

The good news is that if you use the cards responsibly, it probably won't be long before you can get rid of them and apply for regular credit cards.

"Most people only need secured cards for one or two years before the credit door opens up again," said Caryn Bilotta at the Consumer Credit Counseling Service of Western Pennsylvania.

For a list of companies offering secured cards try www.bankrate.com and www.cardweb.com.

Another way to re-establish credit is to get someone to co-sign for you for a loan or credit card. If you do that, be sure to ask the finance company to report your name along with the co-signer to the appropriate credit bureau so that any good marks for making timely payments also are recorded under your name.

If you can't find a co-signer, you may want to apply for a department store or gasoline card. Those types of card often have more lenient application standards than all-purpose bank credit cards.

Another tip is to maintain checking and savings accounts. Keeping a good relationship with a bank will help show financial responsibility to potential creditors.

Finally, watch out for credit repair companies promising to erase black marks on your credit report instantly for a fee.

"Typically, they can't do anything for you that you can't do yourself," Bilotta said. Some do nothing more than take your money and vanish. "We've heard so many horror stories," she said. "We're leery of all credit repair offers."

Also, beware of credit card solicitations offering guaranteed credit for an advance fee, which is illegal.

"They'll say send $89 and you'll get credit, guaranteed. Then you never get it," Bilotta said.

The Federal Trade Commission puts out a free booklet offering credit repair tips, instructions on how to dispute credit reporting errors and warnings on credit repair scams. To order a copy, called "Building a Better Credit Record," call 1-877-382-4357, or you can download one online under the consumer section at www.ftc.gov.

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