Once you have built up a history of bad credit, only time and the money to pay off past debts can change it. There are many reasons why people fall into the “bad credit” range, but in light of the current economic state, it’s becoming more common and fortunately, many lenders are more forgiving of poor credit than ever before. This doesn’t mean you should not try to repair it as soon as possible however. Those with better credit generally face less fees and lower interest rates when buying cars and other things which you may need a loan of financial assistance to afford.
First it’s important to know what your credit score is. This may be the most frightening part for people who know their credit isn’t great but have too afraid to get a specific number. Remember, it’s better to know so that you can find out what debts you owe and begin formulating a plan to repay them. Credit scores range from 300-850. Naturally, the higher your score on this scale, the better your credit. Most lenders classify a credit score as “good” when it falls somewhere between 720 and 850, a score is “average” when it is 660-720 and “poor” if it is 300-660.
Once you have established where you fall on that scale, you can begin formulating a plan to increase your score. Here are three basic tips for building your credit back up, but it will take some time to see results. Patience is necessary to get out from underneath any overwhelming financial circumstance, so take it easy and follow the steps necessary to make a change in your financial credit rating.
1. Pay off your outstanding debts each month, but be consistent about keeping a bank account, savings account and other bills paid on time.
Make a conscious effort to pay off the debts you can afford to as quickly as possible. If you have credit card debt that is going into default, then contact the company directly. They will let you make arrangements and payments and they may even offer you a discount on your payment totals. If they have not begun a charge off of the account, try not to let it go to a collection agency. This will save this being a further report against your credit rating.
2. Keep paying your current credit cards on time, so that it is reported regularly to the three major credit bureaus.
The best advice is to probably stop using credit cards altogether at this point, but at least keep one for emergencies. When you show a history of making purchases (they can be small) and then paying them off right away, this can begin to help to rebuild your credit. Do not pay bills off with your credit cards and do not take cash advances on them. It may be a good idea to cut up all unnecessary cards, pay off the account balances over time and be done with them. This way you will be able to resist the urge to buy unnecessary things if you still have room before hitting your credit limit. Payments made on time will add to your positive credit rating and look good to other financial institutions.
3. Consider a secured credit card.
If you want to reestablish some of your lost credit, then a secured credit card is one of the best things to consider. A secured credit card has limited funds access and is based on real money that has been allocated to it, there will only be that amount to pay off if you have to use it. By paying if off regularly you then replenish the amount and have it to use again. Once you are at this point, you should also consider opening a new savings account and begin making regular deposits into it. Even small deposits will eventually start to build some real cash in your accounts again.
Most importantly, don’t lose heart. Everyone faces financial difficulties at one time or another. With some dedication and hard work, you will be able to rebuild your credit again and will find it becomes easier to pay your normal bills, like car insurance and home insurance, in no time.
Olivia Jones is a health and financial blogger and also a contributing writer for Policy Expert