How to Repair Bad Credit
The first step to repairing your credit is to know what how your credit looks to creditors - the good, the bad and the ugly.
The Fair Credit Reporting Act (FCRA) requires each of the three nationwide consumer reporting agencies — Experian, Equifax and TransUnion — to provide to you a free copy of your personal credit report once every 12 months at your request. The Federal Trade Commission (FTC), the nation’s consumer protection agency, enforces the FCRA with respect to consumer reporting companies.
Click here to print your Free Credit Report Online. Your credit report will contain information about your ability to pay bills on time, any outstanding debt, whether you’ve been sued or arrested, or have filed for bankruptcy.
What is Bad Credit?
Bad Credit is a credit rating term. If you’ve defaulted on a loan or missed a credit card payment, for example, you can easily be labeled as a bad credit risk by financial institutions. This can make it difficult to get loans and means you will usually pay more interest on any loan you take out. Click here to get your Free Credit Report
Having "bad credit" can be caused by a variety of factors such as:
What is a Credit Score?
A credit score is a 3-digit number based on a borrower's bill-paying history, debt profile and statistical information provided by lenders. The credit score is used to determine the likelihood of future credit behaviors, including whether you will pay on time.
Credit scores can range from approximately 300 to 850. A higher credit score means a better credit rating, low scores mean bad credit.
Factors that will raise and lower your credit score are:
How Bad Credit Affects You
Your credit score will have an important impact on the interest rate you will pay when you borrow money. A low credit score indicates to lenders that you are a high-risk borrower and they may not be willing to lend you money. Or if they do lend money to you, you still may have to pay higher loan fees or receive a higher interest rate which will increase your monthly payment.
Loans of this type are known as "sub-prime loans" or "bad credit loans." They usually come with a higher interest rate, but they can also help you to consolidate your debt and to pay off credit cards. Print your annual Free Credit Report here.
How to Improve Your Credit Score
It takes a lot of discipline to improve your credit and to break whatever bad habits caused you to be in the position of having bad credit.
Follow these steps to improve or "repair" your credit:
Remember that repairing your credit takes time and discipline. If you follow the above steps, your credit will begin to improve over time. But the main advantage of following the above steps is get in the habit of good money management.
What are the benefits of having Good Credit?
A good credit score is 700 or higher. There are many benefits to having good credit such as:
Is your Debt out of control?
If you think your debt is out of control, don't panic. With a little bit of self-discipline and smart financial planning, you can learn how to get out of debt.
The first step is to carefully examine your monthly budget. By reducing your spending each month, you'll have more money available to pay down high-interest debt.
Print our Personal Budget Worksheet to find out if your debt is out of control and what you can do to tame it.
What is a Bad Credit Loan?
Whenever you apply for a loan, your credit history is reviewed. If you have good credit history, you may qualify for a loan with great rates, terms and conditions. But on the other hand, if you have bad credit history and a low credit score, you may have to settle for a bad credit loan.
Bad credit loans are far more expensive than conventional loans. The interest rate is extremely high and the processing fees and closing costs are much higher than normal loans. You may have to come up with a much higher amount as down payment.
If Your credit score is below 490, the lenders may ask you to pay almost 30% of the loan amount up front. If it is 490 to 520, this may go down to 20% and so. No lender offers a 100% financing of a Bad credit Loan without recovering the costs through high fees and charges.
While your applications for other forms of loans will be rejected, your application for Bad credit Personal Loans may be considered and accepted even if you have a court judgment against you. With discipline and spending within your means, this could be a good opportunity for you to put your bad credit history in the past and work towards creating a new healthy credit rating. Don't buy too much house and make all payments on time. The next time you apply for a loan, you can very well apply for traditional loans with much better interest rates and terms.
A Special Note to you — It may feel like you are in over your head sometimes or that you are in a hole so deep that you can't get out. But don't worry! You didn't get there in one day and you will not be able to fix it in one day, but you can put yourself on the right path TODAY! You can be on your way to having good credit and financial freedom. Just follow the steps above and make good choices from here on. You can do it! All the best to you! —Gina O'Neil