11 DIY Tips on How to Fix Your Bad Credit
A damaged credit is perceived by many as a looming permanent dent in your finances. While that may be a nightmare for many, there are a lot many ways you can incorporate to repair your credit. However, this is not a microwave process because it requires time, focus and dedication to pull through. So, steer clear of the scammers trying to lure you into the “repair your credit fast” schemes.
Also, you don’t need to dig deeper into your pocket to hire anyone for a repair service. The best advice here is that no one can do this better than yourself since you understand your finances well.
However, that is easier said than done and that is why the following tips will help you get started in the right direction. You will get the strategies to implement as well as a routine to stick to and the time you will take to put bad credit in history.
- Get Your Credit Utilization Ratio as Low as Possible
A credit utilization is calculated by getting the amount you owe versus the maximum credit line on your credit cards.
Now, your credit score will fall by the day every time you inch closer to your maximum credit line. Therefore, it is in your best interests that you pay any outstanding balances on your credit card to lower this ratio and raise your credit score.
- Raise Your Credit Line
Another way to repair a bad credit is by calling your credit company to request for a limit increase. This comes in handy should you find yourself in a sticky situation where you are unable to pay off debts.
By increasing your limit, your balance consumes a smaller percentage of the available credit. Take this as an example, if your credit card has a limit of $20,000 and you’ve already used up $10,000, you would have used up 50% of your credit card. However, if you increase your limit to $25,000, your utilization will be at 33% with the $10,000 remaining constant.
- Put All Your Credit Card Debs in One Basket
Applying for a debt consolidation loan is another quick fix. What happens here is that you acquire a loan that you will use to clear your debts related with your credit cards and then pay the loan in monthly installments. It’s more like acquiring a loan to offset another loan.
Before doing that, you need to search around for the kind of rates you are qualified for and how they will stack up against your credit card rates. By so doing, you could save some amount in the monthly installments by applying for a loan with a lower rate.
- Authorized User
As mentioned earlier, fixing a bad credit report take a while. However, there are quick fixes and becoming an authorized user is one of them.
Get a friend you trust or family member who has built strong credit over a long time and request for authorized user privileges to any of their accounts. This is a great move since their credit card account will be included in your final credit report.
The good credit report associated with that account will spill into your report as well thus building your credit score.
There’s a catch though. Should your good friend or family member halt remitting payments or bears a huge balance, then all those negative attributes will be included in your credit report.
Vice versa is also true. Should you stack huge balances or don’t make payments, then your relative or friend’s credit will be damaged. So, proceed with caution.
The above steps are the quick fixes to your poor credit score that got you into a bad credit situation. However, below are long-term steps that can be taken to eliminate the problem once and for all.
- Understand Your Credit Report
For you to come up with a solid solution to a persistent problem, you need to understand the problem first. The final problem may be crystal clear, that you have a bad credit. However, the road taken has a lot of corners and the answers are in your credit report.
Your credit report influences your credit score. If there are errors in the report, then you can be sure that your credit score will suffer profound damage. It is, therefore, important that you find any loopholes like errors, identity theft, fraud and the like. Go through public records, late payments, collection accounts and other contributing bad credit score influencers.
After crossing the T’s and dotting the I’s in your credit report, you can then commence correcting your mistakes. You can sign up for a credit analysis that will grade each element in your latest credit score. You can also get expert advice on how to fix problematic areas.
- Fix Overdue Payments and Pay on Time
Your history will always come to haunt you and unpaid bills are no different. If you don’t fix this situation at the earliest opportunity, you can be guaranteed that your credit score will continue falling.
Go through various credit card payments that require clearing and pay up to change your status to ‘paid’ from ‘delinquent’. Do this for any other bill that requires the same.
It is important that you keep in mind that clearing pending bills or collections will not get rid of the bad report on your credit report. These records will not go anywhere at least for another 7-10 years. However, the good news is that you will no longer be referred to as a delinquent and you will be shown as no longer owing anyone any money.
- Set Up a Budget and an Emergency Fund
One of the top reasons why most people find themselves staring at a bad credit report is because they didn’t have solid budgets. If they did, they didn’t follow it to the letter. Living within your budget and means is important to avoid debts that in the long run affect your credit score after failing to service the same.
For this reason, you need to craft a budget and stick to it. Also, set up an emergency fund that will take care of emergency situations instead of borrowing. With such a fund, you will always be on budget and you will ever miss a payment because you had an emergency. It is recommended that you save at least 3 months’ worth of income.
- Acquire a Secured Credit Card and Use it Responsibly
Credit cards are the main source of poor credit scores and bad credits. However, they are also the best chance you have of resuscitating a good credit score. For you to do that, you need to pump in a lot of positive reports and the best way to do that is to use a credit card.
This particular credit card is best suited for those recovering from a bad credit. You will get instant approval since all that is required is a security deposit that will also act as your credit limit. Secured credit cards are also cheaper than their unsecured counterparts.
You can start with a low limit like $500 and grow the limit over time until you are able to get rid of the card altogether.
- Keep a Keen Eye on Your Credit Score
For you to monitor your recovery, you need to keep a keen eye on your credit score. You need to know how you are doing, are you still on track? Are there any changes that need to be considered?
By doing so, you will be in a better position to make sound judgements about your financial situation.
- Assign Specific Cards for Specific Needs
Once you have cleared your bad credit, you can get various credit cards and use them for various needs. By doing so, you have a chance of getting the best reports from every transaction you perform.
For example, you can get the best report for recurrent expenditure, the best report on hotel reservations and the best report for your balance-transfer card.
This type of approach is known as the Island Approach. It is helpful since it comes with its own internal alarm that warns you if you overspend. If you come across finance charges on an everyday expenses account, then you’ll know there’s a problem.
- Patience Pays
Since rebuilding your credit score is an uphill task that takes a lot of time, it is critical that you remain patient. Remember that good things come to those that are patient. This is not a lottery get rich overnight kind of stuff. The process is quantified in terms of months and sometimes years.
Remember that the negative information on your credit report will remain there for another 7 to 10 years. So, you can’t really recover until it’s all gone.
Let’s say that you are disciplined and you have taken the necessary remedial steps to fix your bad credit, you should take around a year to turn around the bad fortunes.
There are a number of other credit repair options that you can consider. One is searching for specialized credit consultants. You can get expert advice for free in credit repair agencies that will help you form an action plan that will guide you out of the woods.
You can go ahead and get more consultations from various credit repair service companies and later compare them. Pick the one that best suits you and dedicate yourself to the plan.
Another credit repair option is consulting a number of consumer agencies like the FTC that is charged with the responsibility of protecting consumers. You can get valuable information from this agency that will inform your decision on which credit repair service company you would want to hire.
You can trust this government agency since they track down frauds and that are credit-related. So, you can be assured that the information you get from them is authentic and reliable.
To sum up, fixing a bad credit needs a lot of discipline and patience in order to avoid a relapse. With that in mind, you need to manage your expectations, especially if you had a good credit score.
Remember, these overseen factors will determine to a large extent how long this process will take. So, make wise moves as you start out on this journey.