Bad credit is something many people end up experiencing at one time or another. It can have a devastating impact. However, it can also be a life saver. For me, making some credit mistakes early in life ended up being very rewarding, even though I didn’t realize it at the time.
Long story short, when I was younger I had some nice credit going, but I wasn’t fiscally responsible nor stable. I ended up ruining my credit. If I could go back in time, I wouldn’t change a thing. During that time a magical transformation happened. I broke out of the “buy now, pay later” mold. Since I had no credit, I could only buy what I could afford at that time. It’s a way of life I still practice to this day.
Sure, you might need credit to get into real estate or a vehicle that’s essential for your livelihood. It should never be used for frivolous spending.
That said, if you’re reading this, there’s a chance that you have bad credit or you know someone who does. With this in mind, I will give you a quick overview of what steps to take next to get on the road to better credit.
Step One: Patience
Understand that you can’t go from bad credit to good credit in 24 hours. Yes, I’m fully aware of credit repair agencies, credit laws and how it all works. You need to be patient. Someone who isn’t patient is very likely to be the target of a credit scam.
Depending on what type of bad credit you have, it’s possible to see remarkable improvements within a year. However, it can also take many years to recover. Either way, you need to start somewhere, so let’s get going.
Step Two: Secured Credit Card
Your first step should be to get a secured credit card from a reputable bank. In my opinion, it doesn’t matter if there’s a annual fee as long as it’s reasonable. Look at it this way, you’re buying a spot back into the game.
Depending on your financial situation, you may only be able to afford the minimum and that’s great. Many secured credit cards have minimum deposits of $200.
From here, you’ll want to raise your credit limit over time. As an example, someone who started with a $200 deposit should consider adding $300 over the next 6-8 months.
Don’t use your new secured credit card unless you can afford to pay the bill in full immediately. Never carry a balance.
Step Three: Get a Second Secured Credit Card
The idea is to add positive accounts. As before, get a secured credit card from a reputable bank and follow the same plan. If you can afford the deposits, it’s ok to get both secured cards at the same time.
Step Four: Gas Card
From here, you want to slowly build up your credit file with positive accounts. You need to start with credit that’s easier to get. Remember, you’re not supposed to be using this credit unless you can afford to pay the entire amount right away.
Gas cards tend to be easier to get, so if you get denied, you know to pause at this step for 3-6 months. If you have Chevron/Texico stations in your area, try for their gas card.
Step Five: Next Credit Card
Going for another gas card or department store card is wise here. I’d lean more toward a department store card, such as Kay Jewelers, Sears, JC Penny, etc.
Again, if you get denied at this stage, sit tight for 3-6 months and try again.
Step Six: Maturation
At this point, you’ve secured four positive lines of credit. Work to increase these limits as you can and monitor your credit file and score. From here, it’s just a time thing.
If you find errors on your credit file (wrong accounts, dates, limits, etc), make sure you contact the credit reporting agency and dispute the item. This is basically what a “credit repair” place does. They contact the CRA on your behalf and dispute the “bad credit” item as not yours, which forces the CRA to quickly verify the item. If they can’t, it disappears from your credit report and your score goes up.
At some point you’ll want to apply for an unsecured credit card. When you’re approved, it’s a big moment as it signals that your credit is returning to normalcy.
Never go on credit application sprees. These can hurt your credit identity. Always think before you apply and limit yourself to one application per month at the very maximum if possible.
In closing, remember that credit can work in different ways. For example, if you’re looking for an auto loan, the lender will probably look at how you’ve handled auto loans in the past. If you’re applying for a department store card, the lender will probably just do a quick credit score look and base its decision on that. And if you’re looking for a home loan, your credit will be reviewed manually, so very serious credit deficiencies will hurt a lot while a small collection agency matter for $50 could be overlooked.
And if you have good credit, protect it. Stop using your credit like it’s a license to spend. Live below your means, not above it.
Tags: bad credit bad credit repair collection agency credit credit cards credit laws credit repair agency credit tips gas credit cards personal credit personal finance secured credit cards
Post Original Author: Jason A. Martin
