Living with a bad credit score is very tough in today’s times. Bad credit score will make you spend more on the long run. Insurance companies often charge a higher interest rate for people with bad credit scores. Banks check credit score before giving you a credit card or a loan. Hence, credit repair is crucial to save money on loans, insurance, etc.
A better credit score, also, gives a fresh start to your life. It might help you in getting new employment opportunities, promotions or raises. So, it’s crucial to start off rebuilding your credit after a bad phase of debt.
Here are few steps that might help you in repairing credit:
1. Create a budget
It’s very important to track your expenses in order to understand how much money is going in leisure activities and eating out. You can figure out this extra amount and keep aside to decrease your debt.
Maintaining a budget might seem a dreadful idea for some people because it halts their luxurious spendings. In fact, following a budget is not difficult if you are firm about it. The first step towards credit repair is to get started with your budgeting. If this falls into place, other things will also be fine.
2. Analyze credit report
Your credit report contains all the mistakes you’ve made that have led to bad credit score You must review your credit reports to check your mistakes. You must also become familiar with the information contained in each of your credit report. Information on the credit reports might look similar even if you’ve ordered them from different bureaus. Each of the credit report contains your personal identifying information, minute details of each of your account, any item that’ve been listed in public record like bankruptcy and any kind of inquiry made to your credit report.
You must check the details precisely to know if there’re any mistakes. These are few things you need to repair if gone wrong:
a. Maxed out accounts
b. Past due accounts that are late, charged off, or been sent to collectors
c. Incorrect information, including accounts that aren’t yours, wrong payment history, etc.
You can dispute any incorrect information in your credit report. You can send your report for verification if you find any information incomplete or inaccurate. Once it is verified, you can think about other things to repair your credit.
3. Contact creditors
Start negotiating with your creditors as soon as you realize you won’t be able to pay the requested payments. There are chances that they pay heed to your request for paying lower repayments that suits your budget. After all, they’d prefer receiving low payments than none at all at the bankruptcy court.
If the creditors agree to your repayment plan, try to get it confirmed in writing. This can save you from changing minds of the creditor. Once all your negotiation is done, try getting a settlement letter from the creditor.
4. Pay off debts
You have created a budget and negotiated with your creditors, now it’s time to pay them. Pay the agreed amount to each of your creditor every month on time. Keep checking if the creditors are receiving payments on time. You can also try the snowball method.
Once you pay the minimum amount on all your bills and spend on your essential expenditures, try paying the extra amount to the lowest outstanding balance.
5. Avoid using credit cards
Stop using cards for your luxuries. You must keep paying minimum on all your credit cards and stop in increasing the debts by using them for extra expenditures which are not urgent. You can think of transferring your largest credit card balance to a low or zero interest loan until all your debts are paid off.
6. Don’t close old credit cards
Try not to close credit cards that you’re using since a long time as it can have negative impact on the length of your credit history. If you’ve a card that charges annual fee, try to switch to another card without any fees.
7. Get new credit
Dealing with debt collectors is very difficult but there are few ways where you can take control of the situation and prevent further botheration.
Once you are in a manageable position with your finances, try opening a new account or getting a new loan. Try getting an unsecured loan, like department store card first, as it’s easier to qualify for. Pay your balance in full and on time. After this you can try applying for a regular bank credit card which requires you to make a security deposit to get a credit limit. This helps a lot to improve your credit score .
8. Refrain from bankruptcy
Bankruptcy can lower your credit score like nothing else. It’s visible on your credit report for seven to ten years. You should avoid using this easiest way to pay off debt, as it has results you can repent later. It has the worst impact on your credit score.
Credit scores always gets affected badly as a result of financial crisis. However, it’s not the end of the world. You can repair your credit by following these steps and start your life afresh.