Despite the horror stories and second-hand tales of “black marks” and credit scores which will prevent you from achieving anything in life, many people simply chose to ignore the full depth of problems associated with having bad credit. While there are certainly some pretty outlandish myths when it comes to the impact credit scores and credit reports can have on your future, there are also some undeniable truths.
The first time most individuals have an application for credit denied, there may be some confusion involved in trying to process why. For a considerable number of people who cannot obtain credit, this comes down to how they have dealt with credit in the past. While some are aware of the differences between credit scores, credit score ranges and credit reports, others unfortunately, are not.
With the ability to get credit having great importance to the options you may have in your life, this should not be something taken so trivially.
If you have a history of bad credit, it does not necessarily mean that you are out of the game. These tips can help you build your credit up and work towards a higher credit score.
5 Ways To Repair Bad Credit
#1. Obtain All Three Credit Reports
Many lenders only report to one specific credit reporting agency, so there is a chance that the information each individual company has on you differs from report to report. Once you have obtained your credit reports, check that all of the information is correct. Your personal identifying information, credit history, and inquiries will all be listed, so make sure everything registered against your name is correct.
One note on inquires, there may be some on their that you don’t recognize. Don’t be alarmed as many companies do a soft pull of your credit and then send you applications in the mail for loans or credit cards.
#2. Identify What Needs To Be Repaired
If there is any information on your report which is incorrect, request that it is changed immediately and be prepared to provide any proof required to back up what you are disputing. As it is your responsibility to ensure all information is correct, you will need to be proactive in identifying what exactly needs to be amended.
When you do notify one of the credit reporting agencies to errors, they have 30 days to respond to your request and 45 days to investigate the dispute.
#3. Get On Top Of Your Credit Utilization
This essentially means paying off chunks of high balances, or more than interest on credit cards which have been maxed out. Try your best to begin with lowering outstanding balances, and if possible, taking your debt to less than 30% of their respective credit limits. Your credit score will certainly improve as a result.
The best option here for many is using the debt snowball. This is when you organize your debts from smallest balance to largest. Then you make the minimum payment on all debt except for the smallest balance. For that debt, you put as much money as possible towards it.
Once you pay off that debt, you put all the money you can towards the new smallest debt and pay the minimum on all the rest. Doing this snowballs that amount you can put towards your debt and motivates you to pay it off quickly.
I wrote a great post on some tips on how to come up with extra money to help pay off your debt.
#4. Make Payments On Time Or Early
The more payments made on time or prior to due date, the more likely your credit score is to improve. This frequent behavior is an indication to lenders that you are a responsible and trustworthy consumer, which will enhance your chances of being approved for further credit.
If you have trouble making payments on time, set up automatic payments with your credit card. Doing this will ensure you make payments on time.
Another option is Debitize. This service will help you treat credit cards like debit cards. You use your credit cards as usual, but every time you make a purchase, Debitize will transfer the amount you spent from your checking account to a savings account. When your bill is due, you have the money to pay it off in full. You can learn more about Debitize here.
#5. Apply For Credit Cards For Those With Bad Credit
While your chances of approval for a credit card with a major operator may be low, there are other options. Many credit card companies these days provide services to those with poor credit history, which can help you slowly build your credit up over time. If this is not possible, a secured credit card may be another option.
Understand that these credit cards will most likely have sky high interest rates because you are a risky person to lend money to. But if you can pay your balances off in full and on time, you will improve your credit score and increase the likelihood of getting approved for better offers in the future.
All in all, progress for improving your credit is a slow process, but the sooner you start the quicker you can turn things around. Getting into the habit of building up things slowly may lead to better things on the horizon.
Hi, my name is Jon and I run Penny Thots. I’ve been interested in personal finance since high school and love writing and talking about it. You can learn more about me in the Authors section of this site.