What to Do If You Have Bad Credit
NOTE: If you are currently in debt, you should not even concern yourself with improving your credit rating. Your one and only priority should be to pay off your debts. Read this article on how to pay down your debt instead. Only if your debts are paid off should you worry about your credit rating.
The greatest obstacle for people with bad credit to overcome is desperation. Desperate people become so caught up in finding quick and painless solutions to their problems that they throw common sense and reason out the window. The “bad credit” sector of the financial industry serves as a clear example of consumer desperation. Desperation for credit access drives people with bad credit to take out payday loans at 800%+ interest. Desperation for credit fuels the booming, but ineffective, credit repair industry. Unscrupulous credit and debt services prey on desperate customers, selling them unhelpful and sometimes harmful services that only make the problem worse. If you have bad credit, you must first detach yourself emotionally from your situation as much as possible to formulate your plan of action.
In order to succeed at rebuilding your credit, you must place your credit rating in its proper perspective. Sure, having a good credit rating is important. A good credit score qualifies you for better rates on loans, mortgages, and credit cards. Good credit can also lower your insurance premiums and help you get a job or rent a home. However, you do not need good credit to get by financially. Your credit rating is simply a snapshot of your creditworthiness at any given time. Think of your credit rating like your report card in school. Sure, a higher GPA is better, but bad grades one semester aren’t the end of the world. Just like you can raise your GPA by improving your grades for the next term, you can also improve bad credit by working to pay your bills on time.
Bad credit is by no means permanent. Your credit rating varies from month to month as your creditors update your payment information on your credit report. While past late payments and delinquencies are taken into account when calculating your credit score, the most recent information is weighted much more heavily. Several months of on-time payments following an overdue balance can improve your score dramatically! Moreover, federal law requires that virtually all negative information found on your credit report be removed after no more than ten years. Even bankruptcy must be removed after seven years! At this point, you’re probably thinking, “10 years is a long time!” You’re right; it is. However, seven to ten years is the absolute longest you must wait to rebuild your credit.
If you have bad credit, you must realize that there is no quick fix for bad credit. The only way to improve your bad credit rating is to build a history of credit responsibility. This means you must pay your bills on time and have patience. MyFICO.com reports that the single greatest factor influencing your credit rating is your payment history. Each month that you make on-time payments, your credit rating will improve by a small amount. Over time, these gradual monthly improvements will accumulate. Depending on the severity of your bad credit problems, you could have good credit again within a few years.
Creditors and credit reporting agencies occasionally make mistakes. It is your responsibility to check your credit report for errors and inaccuracies. If you find a negative item on your credit report that you believe to be false, you should immediately contact the credit bureau and challenge the entry the inaccuracy in writing. In your letter, identify the negative item in question and explain why you believe it is inaccurate. The credit bureau will open a free investigation on your behalf. The creditor that reported the entry must provide evidence supporting the item. If the creditor cannot demonstrate the legitimacy of the item in question, the credit bureau must remove it from your credit report. The credit reporting agencies will only remove information in your credit report if the investigation deems it inaccurate. You cannot remove accurate information from your credit report. If the credit reporting agency’s investigation finds the challenged entry to be accurate, you may add a notation to your file that explains your side of the story. There is no cost for any of this.
Do not waste your money on a credit repair service. Credit repair services cannot magically boost your credit score. In fact, they can’t do anything that you can’t do yourself for free. It is impossible to instantly improve your credit score, except by removing inaccurate information.
The passage of time and a growing record of on-time payments are the only surefire ways to restore your credit. Having poor credit is not necessarily a bad thing if you are in the process of recovering from debt. Bad credit restricts your access to credit, thereby restraining you from falling back into debt. Take advantage of your limited credit availability to adjust to a lifestyle that does not depend on debt. If you avoid desperation and have patience and determination, your credit will improve.
