The Big Climb Back From Bad Credit

Bad credit can feel like getting a door closed in your face. If you get rejected by a lender, that’s almost exactly what’s happening. The doors to a mortgage, to a decent car loan, and even the door to renting a place can all close thanks to one number. But it doesn’t have to be the end of your story by any stretch of the imagination. Your credit repairs itself over time, but there’s plenty you can do to help give it a bump and make sure that nothing else is dragging it down. Let’s take a closer look.

Check your report

First of all, it’s important to see where you actually stand. Anyone can request their credit report every twelve months from the three major credit reporting firms. If you want to keep a closer eye on it, you can also pay a subscription to keep your access to it. Not only do these reports tell your credit score, but they all show the entire report, including where entries have come from, such as your creditors. Credit reports can also detail how much you owe in total, as well as giving you a better idea of how often you pay your debts.

Dispute what you need to

If you spot any suspicious reports when checking out your credit, make a note of it. False or disputable negative reports are more common than you might think. By disputing them, you may be able to get them removed from your report automatically. This is one of the few ways to instantly repair your credit and boost your score. What’s more, you may find that some creditors are open to negotiation regarding their own reports on your score, even if it isn’t false. Getting in contact to ask politely to change their report. You can offer them a payment in exchange for deletion, or you can simply tell them any extenuating circumstances that resulted in a late payment. If you have been an otherwise good customer, they may be inclined to show a little mercy.

Get on time with your bills

If you’re done with removing bad reports from your report manually, now it’s time to ensure that you’re not adding any more. The longer you stay behind your bills, the worse the impact on your credit score. Besides poor budgeting, one of the most common reasons for late bills is simple forgetfulness. If you can, arrange your bills so they all fall on the same day. Whether or not you manage to, there are bill reminder apps you can use. These can tell you when bills are coming up and notify you of which bills are next, so you’re always prepared.

Pay down your balances

Besides your bills, paying down the balances you have on any open accounts and lines of credit is the next step you need to take, if possible. To do this more quickly, you need to look at your budget and find the extra cash you need to get things back to where they need to be. There are several budgeting software tools that can help you take a closer look at your income and your expenses. By taking a closer look at your common spending habits of bills for services that you might not need, just about everyone can find some money that they can save towards clearing their balances.

The devil’s in the debt

Bad debt and bad credit go hand in hand. If you’re in bad enough debt, you might not have the ability to pay down all your balances. Instead, you need a debt reduction strategy. Debt consolidation is one strategy worth approaching. It doesn’t reduce existing debt, but it can stop your interest from growing and set it at a lower rate. There are ways to get a loan with bad credit, too, so the option is applicable for many. Just ensure that you are able to afford the repayments of any debt consolidation loan you take out. Besides helping you clear your existing debt, it could be a way to show that you are able to reliably handle your loans. This, in turn, will help you build a better credit score.

Credit cards can be the biggest offender

When used responsibly, credit cards can also help you build your credit score. There are secured credit cards built specifically for that but be wary of them because they tend to have a higher APR than the majority of cards. Regardless, credit card use is one of the habits that most commonly leads to a bad credit score in the first place. Credit card usage applies for 30% of the score in total. This means that if you can get your credit cards under control and establish a good utilization rate, it can have a big impact. Your utilization score is your balance compared to your limit. A 30% utilization rate is widely recommended. Too high, and it looks like you can’t handle your credit. Too low, and it makes it look like you don’t use it.

Be careful with loan applications

Until your credit score is in good shape, you should stop applying for the majority of loans. Of course, some options like debt consolidation loans are exempt from this. But most, such as mortgages, car loans, personal loans, and so on may have higher standards than you can meet. If you get rejected after a loan application, it hurts your credit score. Make sure your chances of being accepted for a loan are high enough to justify that risk. Avoid applying for many lines of credit all at once, too. This is not a sign of responsible credit use and can immediately result in your credit score going down, as well as a host of rejections which will harm it even further.

Diversify your borrowing

This is a step for when your credit score is in a slightly better shape. To keep it improving even more, you should start to responsibly use different kinds of credit. Lenders like to see borrowers who are able to stay on-time and on-track with different kinds of accounts. For instance, this can mean having one kind of revolving credit (like a credit card) and one kind of installment credit (like a personal loan.) Only open new lines of credit if you are certain that you can manage them. Don’t take this step if it is going to harm your ability to maintain your current payments to any degree.

Protect your score

As mentioned, one of the best reasons to check your credit report is that you can potentially see any erroneous accounts. Besides past creditors getting it wrong, one of the growing reasons for these erroneous accounts is identity theft. A major reason that criminals steal identities in the first place is to open up lines of credit under their name such as credit cards and loans. This theft is made accountable to you and it can harm your credit score. Reporting the identity theft to all the lenders listed on your credit report can cause them to freeze any activity on all lines of credit. After any fraudulent accounts have been closed and you have changed the details on your own accounts, you can correct those negative reports through the dispute process.

Avoid having no credit

Having no credit isn’t quite the same as having bad credit, but it’s still not the best position to be in. If you have no open lines of credit, whether it’s an overdraft, a credit card, or a loan, then you aren’t giving future lenders any indication that you are a reliable borrower. Avoid the urge to cut up your credit cards and to close accounts once you have met the balances. If you are closing any lines of credit to make things more manageable, it’s better to close the newer ones. The more established a line of open credit, the more positive the impact it can have on your score.

Stay on top of your spending

The better your spending habits, the less likely you are to fall into the kind of debt that harms your credit in the first place. We all have our spending habits, but we are able to become cognizant of them and to replace them with better behavior instead. Expense tracking apps can make you a lot more aware of where you’re spending your money. If you’re having trouble sticking to a budget, these apps can serve as a more active account. Simply accounting for your expenses is going to make you a lot more aware of how you use your money on an unconscious level.

There are plenty of steps you can start taking to repair your credit. Being responsible with your money plays a crucial role in giving it the room to grow, but don’t neglect the active steps you can take, either. The sooner you can get it back to full strength, the sooner you can get the loans you need.

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