How to Rebuild Bad Credit
So, your credit’s not great. There are no quick-fix solutions when it comes to rebuilding bad credit history. You can’t sweep late payments away or toss out charge-offs. But with patience and discipline, you can rebuild your credit sooner than you may think.
Companies may tell you they can make old debts disappear or help you start an entirely new credit history. These “credit repair services” say a bankruptcy or bad credit history will make it impossible for you to get any credit for years to come. Certainly a poor credit history will impact your ability to obtain new credit. However there are many options available for people who are ready to begin rebuilding their own credit file. There’s nothing anyone else can legally do to improve your credit rating that you can’t easily do yourself for free.
The first step is to get a copy of your credit report. One easy and inexpensive way to do this is by ordering a copy of your credit report online.
Are you overwhelmed by your debt and anticipate not being able to pay the minimum balances? Consider credit counseling or a debt repayment plan. A credit counselor helps you devise a schedule to pay your debts, but there is no signed commitment. Seeking counseling doesn’t show up on your credit report, but you are responsible to stick to the plan.
However, a debt repayment plan can affect your credit status. Creditors may report that an account is in a debt repayment plan, that some payments (if any) have been missed, or that concessions have been made to help reduce your debt to a workable amount. Under the Fair Credit Reporting Act, this accurate information about your accounts can stay on your credit report for up to seven years. In addition, your creditors will continue to report information about accounts that are handled through a debt repayment plan. However, if you can avoid filing bankruptcy, a debt repayment plan may be worth the trouble. Remember, bankruptcy stays on your credit report for up to ten years.
If you prefer to rebuild bad credit on your own, you can plan a credit strategy much like you would a budget. Apply for a major credit card if you only have local credit, close old unused credit accounts and keep tabs on the number of inquiries in your report. If you’re having trouble getting a major credit card and have no other credit, start small. One way is to apply for credit with a local business, such as a department store, local bank or credit union. These local merchants may have lower credit standards than larger lenders and can help you to establish a track record of paying bills on time.
You could also ask a friend or family member to cosign your loan or credit card application. Obtaining a secured card, one guaranteed by a deposit, is another option. And finally, make sure to submit all of your payments on time. Lenders give more weight to recent payments, so start by showing that you are a solid credit risk now.