Maybe you have had a loan application rejected, or you were approved, but stuck with a ridiculously high interest rate. You can't acquire a new credit card. You've got bad credit.
What is 'bad' and how can you fix it?
The main signal of poor credit worthiness is a low FICO score, around 650 or below. Under 500 is off the chart. Your FICO score is a figure calculated by the three leading credit reporting agencies that takes into account factors such as the amount of your total outstanding debt and the number and length of late payments.
The first steps to improving your credit are ordinarily highly personal. A lot of folks have problems with self-discipline or find it challenging to keep financial commitments. If this is typical of you, it may require a counselor or a credit repair specialist to put you on the right path. However, other, more practical, steps are in your direct control.
Begin by obtaining a copy of your credit report from all three major agencies: Experian, Trans Union, and Equifax. Your report can be acquired yearly free of charge. Review the information thoroughly, and get the help of a financial expert, if necessary.
There are no official statistics, but estimates of credit report errors range from 8%-40%. Some errors are minor, such as incorrect age, address, and so forth. Some are not so minor, and include accounts shown as open that have been closed. Your report could even show debts that were acquired by another person, that have nothing to do with your credit worthiness. So make sure that each entry on your report is accurate and up-to-date. But, be honest with yourself. The agencies make concentrated efforts to check when pressed.
Make a detailed, practical budget that includes all of your monthly expenses and a cushion for unforeseen amounts. Then, contact your creditors. If you run across an unsympathetic individual, remain polite. Ask for a supervisor, if necessary. Tell them honestly what you can afford to pay and request a reduction of the debt. They may not grant your request right away, but after a few months of steady repayment and a follow-up call they may reconsider. Keep notes of the agreement and keep your word.
Cut up as many of your credit cards as you can possibly do without. Continue to pay on the outstanding balances until the account is paid off. You might even persuade the creditor to forgive the remaining debt.
Pay back what you can, as soon as you are able. Get current on mortgage loans first. Protect your home. Then proceed to small amount, high APR debt. Then move on to larger balances. Do your best to always pay something monthly on every account.
When applying for a new card, there are some options. For example, you can obtain a secured card no matter what your credit situation is at the moment. It works exactly like a normal credit card, but the credit limit is determined by how much actual cash you deposit into the account. Remember, any card should be used for real emergencies only.
Other, non-general purchase, credit cards may be easier to get while you are improving your credit rating. Department store or gasoline cards are one way to get started improving creditor's opinion of your level of risk if used responsibly .
Fixing credit worthiness is actually more like mending than repairing. A repair replaces a broken part and you're on your way. Mending takes time and patience, whether what's broken is an arm, a sweater, or your credit reputation. Stick with it. An acceptable credit report and FICO score is vitally important in today's world. |
