Your credit score is a reflection of your financial history, and bad credit history will undoubtedly affect your life in many ways.
From reducing your chances of getting loan approval for making it hard for you to sign the lease on your new apartment, bad credit can follow you everywhere. Luckily, there’s a solution for nearly every bad credit problem.
The following tips will help you deal with your bad credit history and improve your credit score.
Check Your Credit Report
As is the case with any recovery plan, always start by evaluating your current situation, which, in this case, is an extremely easy thing to do. Anyone can get a free credit report every year by placing a request at the official websites accredited by the biggest credit reporting agencies.
Although the report won’t include your credit score, it will still provide valuable insight into the kind of problems that are weighing your score down.
For a better understanding of your credit listings, you can request that the company attach a note to your report explaining the especially rough patches that are lowering your score.
This can serve as a wake-up call in the sense that it’ll help you identify the investments and the purchases that contributed to the current situation, pushing you to evaluate your financial decisions and keep your overspending tendencies in check.
Bad credit is mainly caused by accumulated debt, so before you can start improving your credit, you first have to stop adding to your debt. Start by putting your credit cards away and then come up with a reasonable, strict budget that clearly depicts your cash inflows and outflows down to the last dollar.
This process can be daunting, but it’s a necessary eye-opener that’ll show you how easily your utilities, insurance, bills, mortgage, and other expenses can pile up.
By seeing the different categories in which you spend your money, you’ll be presented with many opportunities to reduce your expenses and improve your credit score.
After identifying the areas that you can save up on, aim for at least an initial 10% spending reduction and increase the percentage as you go.
The most important thing here is to be strict with yourself no matter how hard it is to adjust because every penny you save is a step toward a better credit score.
Apply for a Bad Credit Loan
When you apply for any type of loan, the lender will examine your credit history to assess the risks in lending you money and ensure that you can repay that money in a timely fashion.
Having a bad credit history is likely to raise some serious red flags for the lender. As a result, there’s a much higher chance of your loan being rejected when you have a low credit score.
If your bad credit is haunting you, but you need an immediate solution to keep you afloat while your credit score slowly improves, consider applying for a bad credit loan. By working with lenders if you have bad credit, you can obtain the extra cash you need to tend to your basic needs and cover any emergency expenses.
Although the right personal loan for bad credit can be your best chance at acquiring a dependable source of income, for the time being, it also comes with a few disadvantages that you need to be aware of.
Personal loans for bad credit take longer to process than traditional loans, which can be a problem if you’re suffering from a dire financial situation.
Additionally, lenders typically offset your bad credit with higher costs, consequently increasing the fees and interest rates of the loans. This can make the loan too expensive for many borrowers, possibly adding to their debt, which is the exact opposite of the desired outcome.
Keep these considerations in mind and take the time to consult with various lenders to get a better understanding of the different kinds of bad credit loans that you’re eligible to apply for.
By doing so, you’ll increase your chances of finding the right loan with the right terms and conditions for your situation; one that’ll help you break your bad credit cycle and improve your credit score.
Pay Down Your Debt
Your next move should be to start negotiating with your creditors and devise the best plan to manage your debt.
Ideally, you’ll pay off your debt in full, but if you can’t, then start by paying off the highest-interest creditors first. This way, you’ll at least be saving the most money on interests. Alternatively, you can pay off smaller balances for all your creditors to tackle your collective debt in a single step.
If your credit score qualifies you for one, a balance transfer for your credit card may be a better option. By providing you with an interest-free period, a balance transfer can buy you more time to pay your debt down without accumulating as many additional charges over time.
Get a Secured Credit Card
If you’re in the process of re-establishing your credit score, getting a secured credit card is a step in the right direction. To obtain a secured credit card, you will have to put up a cash deposit as collateral.
In order for the bank to protect itself in case you default on your payment, the deposit you pay will have to be equal to your approved credit limit.
By paying your monthly bills on time, your bank will report your payment information to the major consumer credit agencies, enabling you to rebuild your credit score.
There’s no reason for you to continue living in the shadow of your bad credit history. If you’re ready to do the work, this guide can help you build a better credit profile and leave your bad credit history in the past.
Remember that while dealing with a bad credit score could take some time and a lot of effort, the longer you put it off, the more difficult it will be to accomplish. So, pull out all the stops now and start working on your current financial situation.