If you’re one of the millions of people that has been negatively impacted by the global financial crisis, then you may find that your credit rating has suffered. Realize though that no amount of good advice can be a replacement for responsibility. Living within your means and giving a proper amount of deference to your financial situation will always be better than trying to pick up the pieces after a meltdown. Still, a lot of responsible people have been suffering lately due to no fault of their own, and if you find yourself in this group you will be able to reestablish your credit and recover. In this article we explore what options you have available to recover from bad credit.
- Apply for a Secured Credit Card
These types of credit cards require that you keep some collateral, typically $100-$500 in an account. The nice thing is that after about a year of doing this you can upgrade to a regular credit card. Make sure to check for any hidden fees and that the issuing lender reports to all 3 of the major credit agencies before you apply. - Make Sure All of Your Debts are Paid Off
If you have recently been denied credit then you are entitled to a free copy of your credit report from one of the three major credit reporting agencies (Experian, Equifax, and TransUnion). These agencies also offer a one-time deal, so if you can, take advantage of that as well. Make sure to pay off any outstanding debts and to challenge anything on there that you did not legitimately incur. It is also possible to write the lenders asking for forgiveness, and have them remove bad marks against you, but it’s not quite standard procedure for them to do so. - Watch Out for Phony Credit Reduction Scams
There are some legitimate non-profit credit counseling services available that can act as a middle man in dealing with creditors and help you to reduce your debt. There are also a ton of scams out there that will do nothing but put you deeper into debt. Make sure to thoroughly research these types of services before using them. - Get a Small Loan to Help Build Your Credit Further
Once you are able to reestablish a line of credit, and are paying it off on a monthly basis, don’t expect lenders to just automatically open their coffers to you. Factors they will take into account typically include your monthly income to debt ratio, how much debt you have tied up in high interest accounts, how much savings you have, your credit history for the last 7 years, and other issues related to stability like the number of residences you’ve had.
Make sure to explain the circumstances that lead to your financial troubles, and don’t forget to mention things like you were 1 of several thousand workers to be laid off at your job, or that the company has gone out of business. The better you are able to show the lender that you are financially responsible, the better luck you will have at getting a loan. Once you’re on the road to recovering from bad credit, learn how to build and use good credit.
I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.
You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.
Great article and tips! My first credit card (which I still have) was secured and was the only reason I was allowed one when I was in High School. Since then and by always paying on time I’ve never been denied one.
-Ravi Gupta
Explaining your circumstances and advocating frequently yields positive results in many endeavors. Good tips!
Good ideas, I have one to add as well: You can always just apply for a credit card and use it minimally to build your credit back up. In this case, you will be able to easily pay off the expenses.
A bad credit happens to anyone in-spite being careful and responsible especially during financial crisis. Putting up points that gives information about nonprofit credit counseling will ease out the pressure building on the people who are desperately looking to get out off bad debts. Thanks for sharing the tips
Some good tips in this post. Sometimes the best way to recover from bad credit is to just wait it out until the bad stuff drops from your report.
I agree about the consolidation of debts. You should be able to find a small loan so you can pay off your debts in multiple banks or financial institutions and subsequently pay the new consolidated debt. As much as possible find a loan with a lower rate than your previous credits. This will make you recover on a short-term and you should be able to take it from there.