How to Improve Bad Credit

Bad credit can affect your life in many ways, such as: paying higher interest rate, failure to get a job, paying higher premiums on insurance, failure to get a loan or financing and massive damage to your self esteem. 

Acknowledging you have bad credit is a tough pill to swallow.  Acknowledging this fact, however, is the first step you must take to begin to make the trip up the road to good credit. People tend to hide their head under the blanket and pretend their credit is fine. They may struggle to make payments to credit cards, fight to stay above water until they finally give up the fight and decide they can live without credit.

The problem is we do need to have access to credit. It is easy to decide to live without credit until an emergency arises and you need a loan. At that point, it is too late. You cannot rebuild your credit overnight but you can move on from bad credit, turn over a new leaf and begin again. 

Step One: 

As mentioned above, the first step is to acknowledge you have bad credit. Acknowledge it and lose the guilt or shame associated with the bad credit. There is no room for guilt. You should have learned your lesson on how bad credit can affect you and now it is time to move forward, letting go of the shame and begin to upward climb to a good and positive credit history. 

Step Two:

Credit is never so bad that you cannot begin to rebuild immediately. It is a fallacy that you must wait 7 years for the negative information to fall off of your credit. The longer you wait, the longer your credit report is full of only negative information. You must start getting positive credit added. Even if your credit is so bad that you can’t raise your score, adding positive credit can at least mitigate the damage and lessen the climb back up when the negative information is not so damaging.

Step Three: 

Forget what you may have read about disputing items or trying to settle debts first. The first physical step you must take is to get positive credit added to your report. This is not done by disputing or settling debts.  This is only done two ways: If you have an open credit account, make sure you make every single payment on time from this moment forward.

If you do not have any open, positive accounts showing, you must get a secured credit card now. Check with your local bank or credit union to see if they offer a secured credit card. If not, do an internet search on secured credit cards. Find one that does not charge high fees, reports to all three credit bureaus and offers guaranteed approval. You can read here for more info on secured credit cards.

Step Four: 

Pull copies of your credit reports and dispute old debt and all inaccurate accounts on your report. Federal law provides each consumer with the legal right to dispute anything on their credit report. The flip side of this dispute is the creditor is allowed 30 days to verify or correct the account. If the creditor fails to verify the debt within 30 days, the credit bureau must delete the account.

There are flip sides to this law. One side benefit is you the consumer can require the credit bureau to delete the information if it is not verified.  This means that even if the creditor has all accurate information reporting, if he fails to respond-for whatever reason, the debt must be deleted and cannot be added back on later.

The other side of the coin that benefits the creditor is they are not required to prove the debt. If the creditor simply replies that the debt is verified-the debt remains on your credit file and you must pursue the correction by other means. Details on how to file a credit dispute can be found here. 

Most creditors do not maintain old records. This means that if you have a debt that is more than 3 years old on your file, you may be able to dispute it and have it removed, simply because the creditor fails to respond in 30 days. The same is true for charged off accounts. Once they are charged off, the creditor doesn’t keep those records on site. They, often, won’t spend the time or resources to have staff verify debt that is already charged off. 

It is not uncommon to see many old accounts fall off of someone’s credit report this way and this can cause an immediate increase in your credit score. 

Step Five: 

Keep all balances under 30 percent of your credit line. If you have your credit cards maxed out, make it a point to get your credit utilization under 30 percent you will see a very nice increase in your credit score. This factor alone is worth a full 30 percent of your credit score. You can read more about it here. This is also a very good article to read if you are considering paying off old collection accounts. 

By following just those steps above, you can see your credit score start to rise almost immediately. I have seen many people improve their credit score by 150-200 points in just 6-12 months. All it takes is for you to be proactive and start to work on it immediately.