THE 5 BEST WAYS TO FIX YOUR BAD CREDIT
Your credit score not only affects your ability to borrow money in the future, but it also has an impact on how much you pay when you borrow and how easy it will be to get other types of credit, including your mortgage rate. Even if you never borrow money again, your credit score can affect where you live, what sort of jobs you qualify for, and even your chances of being hired. So if you want to improve your credit score and fix bad credit, here are the top five ways to do it.
1: GET A COPY OF YOUR CREDIT REPORT When bad credit strikes, it can be difficult to figure out where you went wrong. But one of the best ways to fix your bad credit is by getting a copy of your credit report and understanding exactly what’s on it. From there, you can see if anything could be removed or repaired, such as errors in account history or incorrect information regarding late payments. Armed with all of your information, it will become easier for you to work towards improvement. Depending on what’s already on there—as well as how long things have been impacting your score—you may find that things are hopelessly lost; at that point, you might have little choice but to start over completely from scratch. That said, many people do succeed in bringing their scores back up after they’ve hit rock bottom. Many even say they learned more about personal finance than ever before. That’s not necessarily an accident: It turns out that rebuilding your credit requires a great deal of discipline and self-control when it comes to spending habits. If you can manage those aspects of your life effectively, then you stand a good chance of repairing any damage done to your credit profile.
2: START BUDGETING The best way to fix bad credit is with a budget. How else will you track your income and expenses, or determine where you’re overspending? You should try different things that help you stick to a budget and not make impulse purchases. If one thing doesn’t work for you, try another until you figure out what works for your lifestyle. Budgeting is an important step in fixing bad credit, so don’t skip it! A good place to start is by writing down all of your monthly expenses—and once you do that, find ways to reduce them. For example, can you live without cable? Would it be cheaper to switch cell phone providers? What about cutting back on eating out at restaurants and takeout? These are just some of the many ways to cut back on unnecessary spending.
3: REVIEW YOUR PAYMENT HISTORY Any late payments on your credit report lower your score and will remain there for up to 7 years. If you have an early payment, you may be able to remove it if you can show that it happened because of extenuating circumstances (like your car breaking down or losing a job). You can dispute these types of entries with one of three agencies: Experian, Equifax, and TransUnion. You have a right under federal law to view your free credit report from each agency every 12 months. So take advantage of that! Review your report carefully, checking to see if any negative information is accurate and also ensuring that all of your financial accounts are listed correctly. Also, look out for red flags like addresses and phone numbers that don’t match those on file at your bank. If you find something suspicious, contact the bureau directly and ask them to investigate. Don’t pay anyone who claims they can fix bad credit—there’s no such thing as a quick fix when it comes to your credit score.
4: NEGOTIATE WITH CREDITORS One of the best ways to fix bad credit is by negotiating with your creditors. For example, if you have a lot of credit card debt, it might be possible for you to consolidate it into one lower interest rate. It’s worth calling up each of your creditors individually and asking if they’ll agree on lower terms; most will be happy to settle if they think they can make money in return. If necessary, ask them what exactly is preventing them from making a deal: Is it just that they don’t have time? Are there other people standing in line in front of you? Whatever their answer, it may help motivate you when working on an offer; after all, you know why a deal isn’t happening. And if they say no, well then at least you know where you stand. You should also negotiate with lenders who have issued mortgages or car loans against your property; these kinds of debts are harder to discharge through bankruptcy proceedings than unsecured debts like credit cards or medical bills.
5: UNDERSTAND THE FAIR SCORE For most people, a bad credit score is just that—something that just happens and can’t be changed. If you want to get rid of your poor score and move toward a more positive one, you have three options: build your score over time with positive habits (you do know you need a history of good behavior to improve your number, right?), get lucky by being offered credit from someone who doesn’t check scores or start over with a new number. If you choose option 3, there are some things you should know about Fair Isaac (FICO), including how it calculates scores and how it uses percentages instead of specific numbers. This will help you understand what goes into your FICO score so you can work on improving it.
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