Bad debt is a problem that haunts millions of Americans. Times get tough, and with how easy it is to get credit for many college students and people just starting out, it can be even easier to make a series of poor decisions that lead into bad debt. And once you’re there, it often seems like there’s no way out.
Combine this with how confusing it can be to figure out your credit score and what it actually means, and a bad credit score seems to be lurking behind every doorway.
Bad credit can hurt you in many ways, some of which you might not have thought about. Of course, it can make it difficult for you to get additional credit or get a house. But it can also make it harder to get a job or even to get basic utilities. It’s also much more difficult to get help during a financial emergency – although thankfully, you can often find great alternative loans for bad credit situations.
Still, bad credit is nothing to just sit back and ignore, hoping it will go away. You can rehabilitate your credit if you’re willing to make the effort. Here are three ways that you can help get your good credit back.
1. Make Payments Regularly – One of the most common causes of bad credit is delinquency. That’s where you fall behind on payments and end up making them late or not at all. There are multiple grades of delinquency, usually scaling from 60 days to over 180 days late.
At 180 days, your delinquent account can be charged off, which is the worst thing that can happen. If you are delinquent but not yet charged off, talk to your credit lender and see if you can get your payments lowered or restructured.
In most cases, they’re going to work with you. After all, to them, some money is better than no money. In some cases, they’ll put your credit card on hold while you make these lowered payments. The downside is that you can’t use your card anymore, but you also stop the damage being done to your credit.
2. Bolster Your Score Other Ways – One of the best things for your credit is a history of timely payments. It doesn’t matter what the payment is for. It can be a utility or your cable bill or any other sort of regular payment. One of the best ways is to get a prepaid credit card and use that to make your utility bill payments.
You then pay off the card every month with the money you’d use to pay your bill. These regular payments will help improve your credit score.
As you pursue fixing your credit, you should also work on paying off accounts that have been charged off. Charge-offs are reported on your credit for seven years, so if you want to repair your credit before then, you need to pay off those balances. In some cases, you can settle the charge-off for less than the original balance.
Even more rarely, you can get the creditor to delete the delinquent or charge-off status from your credit report.
In the case of delinquencies that have been referred to a collection agency, you should approach these in the same way. Work to pay these off, and ask for the collection agency to delete it from your credit report.
3. Lower High Balances – One of the biggest impacts to your credit score is your debt to available credit ratio. What does that mean? Let’s take two people, Sam and James. They both have a credit card with a $5000 limit. Sam has a running balance that is near or at the limit every month.
James keeps a balance that is only about one or two thousand. In this case, James has a lower debt to available credit ratio, and his credit score will be much better because of it. Even better would be if he kept his balance even lower than that.
In some cases, it can be difficult to pay off the entire balance at the end of each month. In these cases, make sure to pay more than the minimum. Even an extra $5 per month can make a huge dent in both your overall balance and the long-term interest you end up paying.
In the end, bad credit isn’t something to ignore. Take some proactive steps to repair your credit and you will enjoy lower interest rates, and fewer rejections when it comes time to get that house or new car.