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Bad Credit Repair - How to Improve Your Credit Score
So your credit's bad. Believe it or not, this is not the end of the world. And you CAN improve your credit score. Not only can you improve your credit score, you can get a bad credit credit card now, because there are companies which specialize in providing a credit card for people with bad credit.
There is no mystery or magic involved in your journey to repair bad credit. But don't believe anyone who tells you it can be done overnight without any work or changes in spending habits on your part. They are deceiving you in order to get your business. There are two fundamental things which you need to do in order to repair bad credit. You need to
There are some other things you can do which will help. We'll talk about these below. But the above two things are critical.
Fix any errors in your credit report
First, you have to get your credit report. You can get a free report each year from the three major credit reporting bureaus, Experian, Equifax and TransUnion. If you know nothing about what is on your report, you may want to get a report from all three at once. Although you would think the information on each one would be the same, sometimes it isn't. Or you can stagger the reports and get one from Experian now, one from Equifax in four month and one from TransUnion in eight months. If you keep up that cycle, you'll have a new, free report every four months.
Now, there is one and only one place to get your free, no strings attached credit reports. That site is annualcreditreport.com. The three major credit bureaus also will send you a free report, but there will be strings. You will sign up for a free trial of their services when you order the report. If you cancel the service before the trial period ends, you will not be charged.
Why Pay For a Credit Report?
So why would anybody go to the sites of the credit bureaus when they can get the same report with no strings. Well, actually, the credit bureaus do provide services which are quite useful. Here's what you can get:
To get your free credit report and take advantage of these services, go to one of these sites:
OK, so now you've got your credit report. Look it over carefully. If there are errors, they could adversely affect your credit score. You'll need to correct them. Go to this page, Fix Credit Report Errors, for help doing that.
Pay Your Bills on Time, Pay Off Your Debts and Spend Less
Pay Your Bills on Time
The first step in this process is to get on a budget. That way you will know what money you have to spend and what bills you have to pay. Click here for help setting up a budget.
With the budget in place, you'll be organized and know when your bills are due. Pay them on time. Late payments of your bills can be reported to the credit bureaus and lower your credit score. This factor accounts for 35% of your credit score. See how important it is?
Pay Off Your Debts
There are three ways to approach paying off your debts:
Each of these approaches has merit. Paying off the debt with the highest interest rate will save you the most money in the long run. But if that debt is a big one, it will take a long time for it to go away and that can be discouraging. If you have several small loans, it may help to pay those off first. That way you can see real progress when you can check off a debt as being fully paid.
The other approach is to get a debt consolidation loan. If you qualify for one, the interest rate will probably be lower than your debt with the highest rate. That way you have just one loan with a payment you can afford. Pay off that loan on time every month and it will do wonders for your credit score.
Or you could get a debt consolidation credit card. You MUST be careful, though, that you don't just keep spending and adding debt if you apply for one of these. Use it only to make payments on the credit card debt you already have. Look for one with the lowest interest rate you can find, hopefully, 0% APR. That way, every penny you pay each month goes toward paying off the balance. Remember, though, that the interest rate will only last a short time, six months, at best. Then you'll be shot right back up to paying high interest again.
With your budget in place, you can see just how much money you have and what bills you have to pay. But there are probably plenty of things you spend money on which are not critical. Look at ways you can save.
Stop Using Credit Cards
The other important part of spending less is to stop using your credit cards! That may be how you got into trouble in the first place. If you cannot pay for something, do not buy it. It's that simple. Simple, but difficult to do. If you need to, cut up the cards and throw them away. This is probably the biggest, most important thing you can do to get yourself back on your feet financially and get your credit score up to where you want it.
It's Going to Take Time
Don’t believe anyone who tells you that they can fix your credit score quickly. It just won't happen fast. It will take time. As you follow the above steps, your good financial practices will be reported to the credit bureaus (or at least no more bad things will be reported). Slowly but surely the bad items will fall away and your score will increase. Even huge black marks like bankruptcy or foreclosure will eventually go away. It'll take 7-10 years for that to happen, but it will. Be patient and diligent. You can do this.
Get a Secured Credit Card
OK, we just told you to cut up your credit cards and stop using them. Yes, you should do that if you have to in order to get your spending under control. But let's say you have gotten your spending under control and have paid off your debts, but your score still has a ways to go.
Paying off your debts on time raises your credit score. If you get a secured credit card, you will not end up with a huge credit card debt. With a secure credit card, you put a certain amount in an account with the credit card company. Then, if you don't pay the bill, money from that account will be used to pay it. Knowing that your money may be taken away is a psychological trick. It can be an incentive to pay on time. So, again, only if you're sure you can handle a credit card, pay on time and not accumulate a debt, getting a secured credit card may help raise your credit score.
Negotiate With Your Creditors
Your creditors do not want you to default on your loan and not pay them at all. Talk to them. They are often willing to negotiate new terms for the loan. They may lower the amount you are required to pay each month to an amount you can handle. They would rather do that than get nothing at all. But once you've negotiated a new payment schedule, the important thing is to stick to it.
Take Out a Loan
What?? Are you serious?? You just finished paying off your debts and we're telling you to take out a loan??
Well, yes we are. But here's the deal. Take out a small loan, one you're sure you can handle. Then make the payments on time each month. That will show the credit bureaus that you are a good credit risk and will raise your score. But, again, be careful. Be sure you know what you are doing. Don't take out a loan that you can't easily pay off.
You Can Do This
Raising your credit score takes time and diligence. But it can be done. Follow these steps and you will watch your credit score slowly increase until you find that it is where you would like it to be.
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