How to Improve Bad Credit

Now, all this isn’t to say that having bad credit will ruin your life forever. So, if your credit is a bit worse for wear, don’t panic, because it is possible to repair it. The key here is to be patient and proactive. If your credit is damaged severely, it’s going to take time and effort to fix it. Here are just a few of the things that you can do.

1. Always Pay Your Bills On Time, and Take Care of All Your Other Debts

This is a healthy practice for all credit users and is especially important for those whose credit is already damaged by a consumer proposal or bankruptcy. Keeping up with all your bills, no matter what they are, is the first step you should take. While most utility bills won’t show up on your credit report, a string of unpaid bills could cause those companies to turn your account over to collections. Credit card bills, on the other hand, both paid and unpaid, will definitely be listed on your report. Even some cell phone companies will inform the credit bureaus about unpaid bills. For those pesky credit card statements, if you can’t afford to pay the full balance, you can get along by making the minimum monthly payment, but try not to keep doing this for too long.

While it’s important to save money for the future, taking care of your larger debts, like the ones pertaining to your mortgage, car loan, or any of your other assets is more important. Remember, the longer you ignore your debts, the worse the situation will get. Not only will your credit be damaged in the event that your case goes to court, but you could end up having those assets seized as collateral. So, if you can’t afford to pay them, contact your lenders immediately. Any legitimate lender would much rather negotiate a longer payment schedule and be paid back in full than go through the motions of a consumer proposal or bankruptcy. Depending on how high your lender is in the food chain, after consumer proposal or a bankruptcy, they might not even get their money back at all, since high-ranking organizations like banks will get paid first. In fact, any legal process that occurs is going to be time consuming and expensive, so they’ll do anything they can to avoid it.

2. Do Not Apply For Too Many Credit Products

While building a solid credit history is usually better than having no credit history at all, applying for too many credit products all at once is not a good idea. When you or someone else reviews your credit report, a soft or hard inquiry will be listed there. Soft inquiries occur when someone is performing a background check and when considering you for something non-credit related, such as a job (potential employer) or a rental property. The same type of inquiry happens when you yourself request a copy of your credit report. Soft inquiries do not affect your credit report.

However, hard inquiries, which occur when a lender or other financial organization review your report after you apply for credit, do affect your credit score. When a hard inquiry is made, a notice of it will appear on your credit report for 3-6 years, and your credit score will drop. That’s why it’s important not to apply for too much credit at once. Not only will your credit score drop with every application, but it could be a warning sign to potential lenders that you have a debt problem and are constantly being rejected for new credit.

3. Consider Getting a Secured Credit Card

If your credit is poor and you don’t qualify for a regular, unsecured credit card, you can apply for a secured card instead. In fact, secured credit cards are often advertised to borrowers who have bad credit. Unlike a normal credit card, a secured card requires a security deposit, usually equal to the desired credit limit, just in case the borrower defaults. The longer the borrower goes without missing a payment, the more their credit score will improve. After a couple of years of responsible usage, they can apply for a regular unsecured credit card and their initial safety deposit will be refunded.

4. Create a Budget and Start Saving

Learning to budget and save is an important part of your financial health, whether your credit is good or bad. However, it becomes especially important when you’re trying to rebuild your credit. Creating a budget and cutting down on costs should come first. Think about what unnecessary items and expenses you might be able to eliminate from your life. Every penny you don’t spend is a penny you can put into your savings account, then use to pay your debts. If you’re already in the midst of paying your debts, you might not have a lot left over on your weekly paychecks to put in savings. However, you can open up a totally separate savings account specifically for unexpected expenses, depositing whatever you can, whenever you can. Anything is better than nothing.

5. Beware of Bad Credit Repair Companies

When your credit score is damaged badly and your applications for credit are being denied because of it, bad credit repair companies will try and lure you in with promises of wiping your record clean. These are likely scam artists preying on those desperate to get back to financial stability.

6. Don’t Give Up

If your bad credit is making you worried, the only thing you can do is take a deep breath, relax, and then start working your way towards repairing it. Depending on just how bad your credit is, fixing it is certainly not going to be easy or cheap. However, draining your hard earned money to pay your debts will likely be better than being handed over to collections or resorting to bankruptcy. If you’ve already gone through a proposal or bankruptcy, your credit score will probably be pretty low, but not irreparable. If you’re determined enough to fix your situation, all you have to do is be patient and be responsible for whatever money you have left.