Fast FICO Recovery

In The Credit Card Cure, Ryan recommends7 Best Practices to get your FICO back in shape after a tough time negotiating for debt settlement, loan modification or aforeclosure workout. Following is an excerpt:

Best Practice #1 – All accounts, on-time, always.

Never make a payment late – not ever again. Start writing your new credit history. No single BP can help you more than this one. So, take it seriously.

Be honest with yourself about why you have late payments on your credit report. If you only have the recent lates…from your recent financial turmoil…and you otherwise have a great record of on-time payments, then you will likely master this BP easily. It’s already part of the way you handle your finances.

On the other hand, if you see from your credit report that you routinely are late with payments, you have some serious habit-changing to do. And, we all know how hard it is to change habits.

Start by identifying the excuses you accept for failing to make payments on time. Some people blame their spouse for being disorganized, or their kids for expensive tastes that cause them to get overextended and short of cash. Others blame the “cost of living” or exorbitant finance charges or financial emergencies (that seem to occur routinely). And, some people just “don’t care” about paying on time. It’s never been a priority and they don’t realize how important it is in terms of FICO score and in terms of late fees and penalties. One of my clients was amazed to discover that she had paid nearly $3,000 in one year in overdraft charges and late fees on credit cards!

Whatever excuses you accept, I challenge you now to consider that, somehow most people manage to overcome those same challenges and make their payments on-time. People who are poorer than you, less intelligent than you, less organized than you and less well-intentioned than you are making their payments on time. Stay with this thought for awhile. Stay with it until you really accept it and are embarrassed enough to muster the will to change. It’s up to you.

In order to begin a new habit – on-time payments on all accounts always – you’ve got to start new behaviors. Don’t expect the old behaviors to get you there. Make behavioral changes and stick with them for at least 90-days. Here are some ideas:

• Simplify – get fewer bills by paying-off small ones, consolidating others. Stop junk mail and emails (ongoing process, I know) to get less cluttered. Maybe get a P.O. Box to keep USPS clutter away until you are ready to deal with it?
  
• Get organized – either on paper or online…get your budget items and due dates clearly stated in one place and identify how you will make the payments each month – by phone, by mail, or online. Have the payment tools you need easily available.
  
• Use whatever means is effective for you – to be reminded of your due dates. Use your own calendar, try email notifications from each account, use online services that send emails, tweets, etc.
  
• Establish an emergency fund – start small, but be consistent. Even just $10 per paycheck into a savings account that is difficult to access will enable you to build a stash of emergency cash to help you stay on-time with your payments.
  
• Use online budgeting tools like www.mint.com
  
• Automate payments from your checking account or at your creditor
  
• Get an overdraft protection on your checking account
  
• Hire a bookkeeper and bill payment service
  

When you are organized enough to know in advance that you may be late on a payment (short of cash) contact that lender immediately by phone and grovel like your FICO score depended on it. Your creditors will appreciate your resolve to pay on-time and sometimes, on an exception basis, they will extend additional time without reporting the payment late.

Reinforcing the new behavior (All bills, On-Time, Always) requires the power of “public confession”. That’s right, this one is so important that I recommend you turn to others for help to reinforce it for at least 90-days.

Choose three people who are close to you and whose opinion you really care about. Choose a spouse, parent, adult child, friend, sister, brother, co-worker or an online forum friend from www.Credit CardCure.com.

Here’s how it works:

Explain to your friend that you have committed to making on-time payments for 90-days on these accounts (name them specifically). Ask for their help in holding you accountable. Tell them to expect an email or phone call from you each week to report on that week’s payments. Ask them to support you by asking for an update if you do not send one.

Now, simply send three emails or make three phone calls right after your weekly review of your budget. Be honest with your supporters. If you fail to make a payment on-time, simply state it and start the 90-days over again. Start ALL the accounts over again – remember, your goal is All Bills, On-Time, Always. Accomplishing the feat for 90-days will go a long way toward making it a habit for you.

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