Bad Credit Advice
There is a stigma attached to having bad credit. People think that the person with less than stellar credit got there as a result of laziness or bad choices. The truth is bad credit can happen to anyone because of things that are out of their control. You may have lost a job because of injury, a death of the family breadwinner, or having to stay home to care for independents after a divorce. Any of these can cause you to default on your debts or obligations. Once you fall into bad credit you may feel like there is no getting out, but do not despair. You can get your credit back to good standing. Here is some advice and tips to help you get out of debt.
Building Blocks to Repair your Debt
When rebuilding a home or anything for that matter you need a foundation. Similarly, rebuilding your credit also needs a solid foundation. Patience and a willingness to work are the two main foundational blocks required to place you on solid footing.
It takes no time at all to fall into debt. A missed payment here and a missed payment there and you have creditors calling you. On the flip side, rebuilding your credit takes a lot more time than it took to get you in the hole. The process will take time and you need to be patient. You cannot rush when it comes to rebuilding your credit.
Willingness to Work
Rebuilding your credit is not an easy task. You have to make changes to your money management habits that will not be simply. Furthermore, creditors are more likely to work with you as opposed to against you if you show an effort to repay your obligations.
How much money do you spend on non-essentials purchases each month?
A New Beginning
To start the rebuild you need to start from scratch. It's a brand new day and you need to start small. If you are able, open new, small accounts and make sure you can pay them off. Showing an ability to repay tells your creditors that you are a good risk. This is especially true if you are making more than the minimum payment. This is much better than continuing to add new debt.
Now is not the time to go about this alone. It may be embarrassing, but you may need to ask for help. Swallow your pride. If you are unwilling or unable to do so you risk putting yourself in a bigger whole. Ask a family member or friend to cosign for a loan or a credit card that will help you rebuild your credit. Chances are they have been where you are and will be willing to help if you show a willingness to work.
Credit Card Type
Reports to credit reporting agencies
Reports to credit reporting agencies
Does not report to credit reporting agencies
Review your Credit Report
Just like a annual physical can help you physically healthy, an annual review of your credit report helps keep you healthy financially as well. Most of your financial accounts are listed on this report and you need to know exactly what your creditors have reported about your accounts.
Additionally, errors on your credit report can lead to poor credit if not fixed immediately. Errors on your credit report need to dispute right away with the credit bureau.
Secured Loans and/or Credit Cards
Think about using secured loans or credit cards as a way of rebuilding your credit. Secured loans are guaranteed by collateral (such as a car or house) pledged by the borrower. If you default on the loan, the lender takes possession of the property to help satisfy the debt. Secured credit cards are typically guaranteed with a cash deposit. Similarly, if the borrower defaults, the deposit is taken by the lender.
Keep the lines of communication open. Do not be afraid to talk to your creditors when they call you. Explain your situation, tell them that you understand you have an obligation with them and that you are not looking to avoid it. Now is a good time to negotiate with your creditors. Under normal circumstances, if they think there is chance that they will not receive payment from you, they may bargain with you. After all, some money is better than no money. Furthermore, whether you pay the full amount or an agreed upon settlement, how you choose to settle the debt makes little difference on your credit score. What matters is what the creditor reports to your credit bureau. Do not be afraid to make a deal with your creditors, just make sure you get it in writing in case of dispute later.
Final Tips and Reminders
Once you have hit bottom the first time, it is easier to walk down the path of bad credit so you be extra vigilant. As little as one missed payment can ruin your credit again. Take precautions to avoid this. Do not take on more than you can afford, set your bills up on auto pay (or at the very least, have email or text reminders sent to you) and check your credit report at least once a year.
Remember, while it seems like it takes no time at all to fall into bad credit and the rebuild will probably feel like it will never end, fixing your credit is possible. Rebuilding and sustaining your credit credit requires hard work, patience, and a willingness to change poor financial habits.