Fix Your Credit in 3 Steps
Are you wondering how you can begin to fix your credit?
- Obtain your reports from each of the three credit reporting agencies. Legally they must give you your report once a year just for asking. Do not trust any middle man who makes it sound like you have to buy a report or subscribe to a “credit monitoring service” to see it. With your reports in front of you, determine the severity of your situation. Too many cards maxed out? Too many missed payments? See how you look to lenders when they see the report.
- Investigate. Thoroughly check the credit reports for accuracy. Each agency gives advice for clearing up mistakes or having explanatory notes added to the report. You may see active lines of credit that you thought you canceled years ago. You may even see mystery entries that could be a sign of fraud.
- Rethink your relationship with credit. Seeing their credit reports makes people realize just how much credit they have acquired over the years and how much debt (or possibility for debt) they face. Redefine your credit cards in your mind as tools for paying conveniently during the month with the pledge to pay off the statement when it comes. Younger people, especially, can fall into the terrible habit of thinking credit cards are magic wands to buy stuff.
Bad-Credit Loans When you suffer from bad credit, often you feel alone in the world, but many people in all walks of life seek to improve their credit. Debt consolidation is an option; however, this only works if your payment is never late. Another solution is a loan specifically for those with bad credit. As always, beware of high interest rates. You want a loan that carries an interest rate lower than your credit cards and other debts. Use the loan to pay off the cards, then cancel the cards.
”Can I refinance that type of loan later?”If you received a loan for bad credit and have improved your credit profile as a result, then yes, you can certainly refinance the loan for a better rate. Start by contacting the original lender. The reason you should contact them is that they put their faith in you when everyone else turned you down. Give them first chance to keep your business. If they are unable to replace your current loan with one at a better rate, search the internet. Many different types of loans that carry a lower interest rate than your current loan may be suitable for you. While you wait on refinancing options, continue to practice your newfound responsible spending habits and to periodically look over your credit reports.
- “What should I watch for with bad-credit loans?When deciding to apply for a loan for those with bad credit, you should consider the following.Penalty for late payment. Is one reason you have bad credit because you missed too many payments? Will it probably happen again? Bad-credit loans can hit you with steep penalties for missing a payment, and not just once in the form of a late fee but also by raising the interest you’ll pay for the rest of the loan life.
- Penalty for prepayment. Yes, some lenders think it’s wrong for you to pay them back early. They want all the interest for all the years. Watch for prepayment penalties before you take out a bad-credit loan. You want the freedom to refinance down the road for a lower rate, or to pay off the loan early and be rid of it.
- Fixed versus variable payments. Beware of balloon payments, which is when you pay one amount at the start of the loan and more as you near the end. Some people use balloon payments effectively; they are certain they will be able to refinance before the payments get too high. If that does not describe you, do not set yourself up to fail by signing up for balloon payments.
Services to Mend Your Bad Credit
Everywhere you go you see advertisements from companies that say they can fix your bad credit. “Debt forgiveness!”; “Instantly Raise Your Credit Score!”; “1 Weird Trick to Raise Your Credit Score.” Our advice is to run in the opposite direction. No one can snap their fingers and fix bad credit.
A solid service that offers credit repair will help you assess your level of debt as well as advise you on managing money. No quick fix, no magic bullet, but after a few years where you show that you can pay down your balances, pay off the worst credit cards and cancel them, and make all payments on time, your credit profile will definitely improve.