Taking On Bad Credit
A bad credit score happens. And going from a good score to a bad score can seemingly happen in the blink of an eye. Fixing it takes a little bit of time, and it can be done. But you need to start now.
In reality, a bad credit score does not mean anything is broken, so instead of talking about fixing it, let's focus on building a credit history that will result in a good score.
Here are some tips that will help you get started and maintain a good score for the future.
Start with a budget
As with most things, building good credit requires a plan. In this case the plan is your budget. A budget that is realistic and you can stick to is one way to spend within your means. Now the reason many people get in debt is outside of their control. They lose their job or get sick and can't work. A divorce or separation is also another reason people get into debt problems. But regardless of how you got there, focus on those things you can control, and a budget can help you do that.
It's important that your budget is realistic… something you can live with for the long term. After all, the main reason for the budget is to make a spending plan that stops you from using debt to pay for the everyday expenses.
An important part of budgeting is to put money aside in a separate savings account. As difficult (you might think impossible) as this is to do, it's an important step, because you are putting money aside for the next time something unexpected happens. So even if you want to borrow money to deal that an unexpected expense, you know you can cover it or at least part of it.
Now that you've budgeted to put a little money aside each pay cheque, you need to budget money each month to pay down your debt.
Pay down your balances
Your credit cards are a good place to start. Especially if you are carrying more than 75% of your credit limit. Using more than 75% of your credit limit hurts your credit score. So paying down your credit cards to below 50% of your limit can really help your credit score. The interesting thing about paying down debt is that the better able you are able to accomplish this, the easier it becomes to stay within your budget. Why? Simple, less money going to paying interest.
Catch up your late payments
Ok. We've made a plan. We're saving a little money each month and we're gradually paying down our credit cards. The next step is to deal with late payments. Often it is hard to catch up all at once. If this is the case, contact those creditors to see if you can work out a regular payment plan. You'd be surprised how making a regular small payment can take the pressure off. If your creditors will not set a plan up for you, you may need to turn to a non-profit credit counseling service to help you establish a more regimented debt management plan. It's important to remember, once you've started to make payments, you need to stick to the plan.
Rebuilding your credit
A plan that has you paying down your debt and catching up on late payments is great. Making payments on time, every time, is the most straightforward way to restore good credit. But it does not actively rebuild your credit, so that's the next step.
With an active credit account (this can be a credit card, line of credit or overdraft) that you maintain responsibly at all times, the credit system can create a positive credit score for you. Paying off debt allows for negative information to fall off your credit report. Having an active credit account that you maintain with payments on time helps build a positive credit history which can help establish a good credit score.
Repairing your credit is not easy. But it can be done with time, planning and some money discipline. And as you look ahead to the future, putting in the effort now will be well worth it in the end.