Bad credit? Too many of us have it. It may be embarrassing to be turned down for a new car, impossible to get a mortgage or even difficult to get a cell phone. The good news is you have time to turn a poor score around! Recover your pride and your ability to get approved for loans and credit cards with this short guide.
Do you know what is on your credit report? If you aren’t even aware of what you owe, you can’t possibly know what you need to fix – and that’s a problem. It’s easy to just ignore past collection demands, bills, and due payments, hoping creditors will just stop calling, but doing so can also be really risky, especially if you get caught. Don’t let your bad credit make you feel overwhelmed or frozen like a deer in headlights. Instead, use the information in this crash course for credit to turn it all around.
Don’t Let Bad Credit Hold You Back. Fix it Today!
How Did You Get Bad Credit?
Did you know that shopping for a mortgage and having your credit checked numerous times in the span of a month (or even a year) can lower your credit score? Usually, these kind of shifts are temporary; within a few weeks, your score will go back to normal. Longer-term bad credit scenarios happen when you have delinquencies, accounts in collection or a high debt load over a consistent period of time. Start by identifying the reasons for your poor credit and it will become easier to address these underlying issues one by one.
Get Your Credit Report
You have so many ways to obtain a free credit report – including contacting one of the three major bureaus directly. You can also check your score and history for free on Credit Karma if you want to see it in realtime.
If you’re more interested in tracking changes over time, or protecting yourself from identity theft, you have the option of using a credit monitoring system such as CreditWise instead. Credit monitoring services allow you to monitor and manage your credit report as needed without having any effect on your score.
Is Everything Correct?
Many times, if you’ve had an account sent to collections and then paid it off, the original company you owed will still show on your credit report. Go through your credit report and make sure everything is correct.
If something is showing that has been paid, contact the creditor or the reporting credit bureau and ask to dispute the information on your report. Always keep proof of making payments and you should have no hassle with getting these derogatory items removed from your credit report or marked as paid in full and closed.
Make Payment Arrangements
If you do have collection items or delinquent payments showing on your report, now is the time to take care of the problem. Contact those creditors. You might be surprised to find they’re willing to work with people to resolve payment problems and clear up their credit. Some will extend an offer to make a new payment arrangement or even a settlement offer to get the bad stuff off of your credit report.
Build the Good
After following the previous steps, you can begin looking for a credit card designed to rebuild credit. These cards usually come with a high interest rate or a partially secured credit limit. They aren’t really a long-term solution, due to the associated fees, but it can give you somewhere to start over if no one else will approve you.
When you are approved, make a small purchase or two each month and keep a balance below 30 percent of the available limit by making timely payments. This establishes a good payment history, a minimum usage of your available credit and the fact that you can keep an account in good standing. Within six months, as your credit raises you will want to stop using that card, but keep it open and apply for a card with a better rate and more flexibility.
Many people find store credit cards (such as Fingerhut) helpful when working to restore credit from the ground up. They let you temporarily extend your buying power by a few weeks (assuming you can pay off your purchases within that time period, which you should) while also giving a more significant boost to your score. This can be a good strategy – just be honest with yourself about what you’re buying. Sure, it might sound great to say you can afford a new couch because your next pay is $1000…but did you remember to think about bills? What about rent? Pay that first.
Having bad credit makes life difficult and it can significantly reduce your buying power, too. Take the steps to make your credit score rise and work to keep it up going forward. Monitoring your credit, taking care of all derogatory reports and establishing good accounts is all it takes to move your score from a 400 or lower to a high 700.