Rebuild Trashed Credit
Knowing What You Control
By Daniel Muniz

So your credit is trashed. At one time, you had plenty of credit cards and loans and you even paid all of your bills on time. But those days are history and now life is awful because you find yourself outside of the financial world. You cannot buy a car or a house at a decent interest rate and it feels like everybody and their grandmother wants to check your credit for even the most mundane of services like for cable and phone.

It just seems like the whole world is against you.

Unfortunately, too many people with bad credit often devote much of their energy in “repairing” their credit instead of expending the same effort in “rebuilding” it. That is not to say that “credit repair” is pointless because it is not, but it is only half of the equation.

The process of credit repair, creatively disputing derogatory items, solely represents the aspect of credit that a consumer has absolutely no control over. Even the most savvy credit repair expert still has to rely on patience and a little bit of luck in uncovering the violations and mishaps of a lender or collection agency that will eventually lead to the removal of negative trade lines. But in the end, the consumer is still at the mercy of the credit bureau.

But credit rebuilding represents the aspect of credit that a consumer does have control over.

Amounts Owed - 30%
You control the amount of debt that you owe and everything that pertains to it. You control how you manage your revolving accounts such as paying them down instead of keeping them indefinitely maxed out. You control the payments that you make to your creditors.

In essence, you still have control on how much debt that you have allowed to accumulate or to continue to acquire, in which you shouldn’t be acquiring any until you are finally able to obtain decent rates and terms.

New Credit - 10%
You control (to a certain extent) who accesses your credit report by limiting the number of hard inquires. Even though a hard inquiry represents only a few points, for people with low credit scores that can still go a long way.

Unfortunately, there are plenty of unscrupulous sub-prime lenders who are more than willing to loan money to people with bad credit. These types of credit items usually contain scandalous interest rates, outrageous fees, and shameful terms. Yet there are millions of people with the “I gotta have it” mentality who end up buying cars, electronics, and other stuff from these shysters. But you still completely control the decision to avoid getting into more unnecessary debt.

So lay off applying for credit or allowing anyone to check your credit unless it is absolutely necessary (such as getting phone service, etc.). Throw away all those credit card offers that you get in the mail and concentrate on being able to get by without new lines of credit.

Types of Credit Used - 10%
You control how many revolving accounts you have, which should be a low number. You control how many finance companies you use which should be zero (or fervently working to get rid of them) because the credit bureaus consider such high interest accounts as a negative impact.

In essence, you control whatever kind of financing that is part of your credit mix.

Length of Credit History - 15%
You control the aging of credit items, especially knowing which accounts that you need to age in your credit mix and which ones that you need to get rid of. You control how long of a credit history that each of your revolving accounts have.

Even with accounts that have short histories, it is still up to you to maintain and service them for a long time especially if they are good credit items.

Do the Math
All the factors just listed account for 65 percent of your credit score and for the most part, you control them. And that 65 percent represents a substantial portion of your credit rebuilding effort that you simply cannot overlook particularly when you have a very low credit score. Each of those factors has to be tended to as carefully and as judiciously as possible in order to beef up your credit.

Payment History - 35%
So you screwed up the remaining 35 percent that represents your Payment History. That is the past and it is something that you have to work on so that it never happens again.

As a result, your lifestyle has to drastically change so that you are not living outside of your means. And many of the luxuries and unnecessary expenses you once enjoyed, like vacations are now out the window. All available cash must be diverted to your bills so that you do not incur any additional derogatory activity.

Overall, too many people with bad credit solely focus on the 35 percent of the portion of their credit score that they have no control over while neglecting the 65 percent that they do control. Although it may be daunting, rebuilding your credit is still a goal you can achieve alongside with repairing your credit.

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