Having bad credit can be overwhelming. It can make you feel shut out of the traditional banking system. You can’t buy a house or a car, or if you can, you have to pay more than a borrower with good credit. This can be discouraging.
But, there is a way out of this hopeless situation, and the good news is it may not be as hard as you think. In fact, if you follow these three steps you will start to see vast improvement in your credit in the next 6 to 12 months. Sure that seems like a long time now, but you’ll be amazed at how quickly it will fly by. So if you don’t want to be in the same place in a year take these three steps. The key is to get started as soon as possible.
Correct Your Credit Reports
Did you know that 1 out of 5 people have an error on their credit report? According to the FTC, it’s true. And you may be one of those with inaccuracies on your report. The first step you can take to fix this is to order and review your credit reports. Equifax, Experian and Transunion are the three agencies that provide credit reports. Sometimes the reports will contain different information so make sure you review all three.
If you have not received a credit report in the last year you can go to www.annualcreditreport.com and get all three reports for free. You are entitled to one report from each credit reporting agency every 12 months. If you’ve already received copies this year, it will cost you about $30 to order all three credit reports. A good website for purchasing your reports is www.myfico.com.
Once you get your report you need to review it in detail for accuracy and correct any errors. For a detailed overview of how to correct inaccurate credit reports, visit www.businessinsider.com/how-to-dispute-credit-report-errors-2013-2.
Use Less Than 30% of Your Available Credit
Many consumers do not understand the impact of utilizing less than 30 percent of their available credit. Here’s how it works. If you have $1,000 available on your credit cards but you only use $300 of the $1,000 or pay your cards down to $300 by the end of each month, you should get a nice bounce in your credit score. You can also increase your credit limit if you can qualify for new lines of credit. For example, if you increase your available credit to $3000, but still only use $1000 of it, the new debt can positively affect your credit score. Even a secured card, which is backed by a cash deposit, will show as available credit on your report. In other words, if you prepay $300 on a secured credit card and don’t use it or if you pay it down each month it will show as $300 of available credit on your report. Even if you can’t get to 30 percent of your available credit, try to get you utilization percentage as low as possible.
Pay Your Bills on Time
Easier said than done, sometimes the bills exceed the funds you currently have. Even if you are a little short each month you can still choose to pay the most important bills first. Of course start with food and rent, including utilities and then pay toward your installment loans and revolving accounts before you pay off less important debts like recent medical bills or cable. Installment loans, such as your auto loan and revolving credit, such as your credit card will show up on your monthly report.
But other debts will only show up when the debt goes into collections so you can normally buy yourself 2 to 6 months before those debts impact your credit score. Also, most medical providers will normally work out payment arrangements as long as you pay a little toward your bill each month. Pay your house, car, credit cards and other installments on time and watch your credit score go up. Always repay your payday loans on time and that it is reported to the credit bureau. If you are having trouble making payments it may be time for a part-time job or to sell some of your things on Craigslist or at a yard sale to get back on track.
If you want better loan rates and terms in the future and less stress, follow these 3 steps faithfully over the next few months. Once you see your credit score rising, you will be motivated to continue to make progress.
