Bad Credit is Not Forever
Why is bad credit not the end of your credit?
- Many lenders look at more than your credit score. Things like a good, steady employment and a stable residence are also important.
- Your bad credit information will eventually go away naturally. By law, bad information has to disappear within 7-10 years.
- Until then, you can reestablish your credit by balancing out the bad information on your credit report with good information.
How do you overcome bad credit and reestablish good credit?Here are some suggestions:
- Keep to one job for a while and don't move house. Yes, this kind of "stability" actually does affect your credit rating.
- Don’t apply for many different credit cards and/or loans. You must be sure that you can meet all your obligations on time for your bad credit to be improved. Besides, lots of applications for credit will hurt your credit rating, too.
- Don't close your oldest accounts; they make your credit appear longer and more stable. The flip side of bad information eventually disappearing is that good information eventually disappears, too. While your credit activity for your oldest accounts won't extend back all the way past the time information is automatically removed from credit reports, the date you opened the account will still appear on the report. A very old account means the creditor has never actually closed your account, which is a relatively good thing.
Cheat sheet for paying your bills on or before the due dates.Unfortunately, in order to rebuild your credit, you have to keep using credit at least a little. If you've had problems simply remembering to pay bills (a surprisingly common problem), this can be a scary thought.
So, how do you remember to pay your bills on time? Don't! Here's are some "cheats" for getting around having to remember to pay your bills on time.
Cheat no. 1: Repay any purchases you make on credit as soon as you make the purchase.How? All credit accounts now let you pay via a direct bank transfer. Many will even let you pay over the phone for no additional fee, or pay over the Internet, almost always without a fee. When you make that one purchase a month you need to make in order to rebuild your credit, simply head straight to the phone or computer to make a transfer from your bank account to cover the entire amount.
Cheat no. 2: Set up a revolving monthly payment from your checking account.You can almost completely overcome the risk of missing a payment this way. Try an amount that's a little over your monthly minimum payment. If you end up paying more than your balance, you'll just have an extra credit on your card which you can use for purchasing something later.
Of course, you'll need to make sure you see these go through at least once to make sure it works. To be extra safe, make a note to check your accounts each month online or over the phone.
Just remember to keep at least the monthly payment amount in your checking account--you might even want to open a special account just for paying bills. The good news is that if this payment account is an interest-building account, you'll be making money on the deal.
Cheat no 3: Get in the habit of regularly checking your account status online and paying off the balance--regardless of the time of month.Remember: you don't have to wait for the statement to come in to make a payment over the internet or telephone. Plus, you can make as many small payments per month as you wish. As long as all the little payments add up to at least your minimum monthly payment, you won't be assessed a late penalty.
With bad credit, where should you go for credit?If all your credit accounts have been closed, or if you just closed them all in frustration, you are now in the difficult position of applying for more credit in order to build up your credit rating with a good payment history. You have to have credit to get credit, but to have credit you need to have gotten credit in the first place. How do you get out of this vicious circle?
- Try applying to a credit union first. They tend to offer the best deals for people with bad credit, probably because each depositor is considered a “shareholder” so that, in effect, you’re borrowing from your own company.
- Apply for a small credit account, like a gas company or department store credit card. In order to re-establish your credit, you will have to use the card every so often, which may be a scary thought if you've had credit problems.
- Find a co-signer. Ask a friend or relative to apply for credit jointly with you. But remember, if you mess up that account, you will hurt your own credit score and your co-signer’s.
- Get a secured loan or credit card. Secured means that you deposit your own money, usually into a savings account, with the lending institution. You would then be able to borrow or charge up to the deposited amount. For instance, if you deposited $1500 in a savings account, you would have a $1500 credit line.
Why go to all this trouble to repair your bad credit?A good credit standing can make your life better by allowing you access to money to buy or do the things you want. Also, because your credit history is considered an indicator of reliability, it may affect your ability to lease a car, rent an apartment, or even get the job you want (prospective landlords and even employers are increasingly asking for applicants' social security numbers so they can check credit history).
Good credit is a valuable asset. Don’t give up on it.