Anyone can fall into bad credit. It’s something that can happen even when you’re being extremely careful. There are always extenuating circumstances that are beyond your control. What’s important is that you are actively trying to get a hold of your finances once again. If you do not have the drive and commitment to fix things, they will simply stay the way they are.

Worse is that the financial hole you find yourself in will eventually become deeper. It’s also possible that further complications arise and make recovery look like a maze. However, rest assured that getting yourself out of bad credit and starting your road to financial recovery is doable and rather simple.

Why fix bad credit?

Credit is something that you’ve probably heard more than once in your lifetime. It’s something that affects more than your chances of getting a loan approved or not. Here are some ways that you’re affected by bad credit:

Higher Interest Rates

Low or Bad credit often automatically means that your interest rates for credit card bills and other loans are higher than usual.

Security Deposit for Utilities

Before you’re able to avail of any utilities for your home or apartment, utility companies will check your credit rating. If your credit is low or bad, they will ask you to pay a deposit. This is a safeguard that they do in order to avoid default payments.

Employability

While controversial, more and more employers are checking the credit score of potential hires. This is, as they argue, to check for responsibility. However, there is an increasing belief that this is to ensure that all employees are above board and do not become a liability.

Lower Insurance Premium

Whenever you try to apply for insurance (car, home, personal) a low or bad credit score will affect the premium that you can get. You can end up paying more for a premium that people with a good credit score would get discounts for.

Looks bad? How can you fix your credit?

First of all, you need to understand that there are no quick fixes to your credit score. If you’re ever approached by anyone saying they can fix your bad credit score in a matter of days, be very wary of that individual.

It’s a sad fact of life that there are people who are always looking out for the next person they can take advantage of. Do not be that person!  So let’s get started on your credit recovery!

Gather all your financial paperwork

This means all your bills, contracts, pay slips, insurance, receipts, everything! Doing this will help you get a clear idea of what your money goes to every month—it’s a good chance to spot where the problem lies. Is there something costing you more than it should? Is there something that’s delayed in the payments? Is there something that considered a ‘want’ rather than a ‘need’?

Determining these successfully will help you prep for recovery.

Request for your latest credit report and correct errors

In order to understand where you are in terms of your credit score, you need to have your latest credit report. You get those from credit bureaus—they are legally bound to provide you with a free copy of your credit report (once a year). So you’d best take advantage of that offer.

If you have already claimed your free report, there are other ways in which you can get your credit report for a minimal fee. Once you have your credit report, it’s critical that you review it carefully and thoroughly. If you spot any errors, it would be best to dispute them as soon as you can. The process to do so may take a while so it’s important to get started. Contact the source of the dispute (the credit bureau, the bank, or the lender) and present your evidence. Don’t forget to follow up!

Get current with all your payments

Bad credit scores often arise from late payments for all your financial responsibilities. If you find that you’re consistently late on paying a certain thing, stick to a strict payment schedule. If you can, set up an automatic savings scheme with your bank. This works well if you have a pretty consistent ballpark figure of your utilities (water, gas, electricity). It’s something that you can figure out right away when you look over your past bills. Once you’ve found the figure, have your bank automatically deduct that amount from your paycheck.

Utilize the utilities payment options that banks have. That way, all your money is already where you can disburse it toward where they’re supposed to go. It may take a bit of getting used to but they’re there to help you get current on your payments.

Settle debts or have a payment agreement scheme

If you have any debts that are past due (but not yet charged off) it is important to get those settled when you can. If you find yourself unable to settle the amount needed, work out a payment plan with your lender. Yes, we understand it may not be the most comfortable conversation to have but it is necessary.

  • It will keep them from hounding you.
  • It will keep your debt from getting charged off which will stay on your credit record for the next seven years.
  • It will help you stay consistent with your overall credit recovery.

Having a payment agreement scheme is a great way to assure your lenders that you are not running from your debts. You do want to make things better.

If you cannot make heads or tails of your financial situation, get help!

There is no shame in getting help! All that’s important is that you have the drive to improve your credit score. Here are some organizations that may be able to help:

  • The National Association of Personal Financial Advisors (NAPFA)
  • Association of Financial Counseling and Planning Education (AFCPE)

Now take a deep breath and get started on your credit repair journey! Good luck!