Bad credit can prohibit you from obtaining bank loans, credit cards and even a job. It's never too late to start rebuilding your credit. Taking steps to fix your credit now can help you achieve your financial goals in the future.
Check Your Credit Report for Accuracy
Begin fixing your credit by checking your credit report for accuracy. Visit the Annual Credit Report website (see Resources) to obtain your credit report for free from the three major credit bureaus (Equifax, Experian and TransUnion). If you notice any inaccurate information listed in your credit report, you can dispute the entries with the credit bureau. Record all past-due and collections accounts listed, as well as contact information for each creditor. Contact each creditor to work out payment arrangements for your debt. Get written confirmation from each creditor stating that they will remove negative entries on your credit report upon payment. As these entries are slowly updated with positive status (or removed altogether) you will notice your credit score increase steadily.
Manage Your Money
If lack of money is prohibiting you from paying down your debts, build a budget for your expenses while saving money to pay off accounts. Monitor your monthly spending habits to see exactly where your money goes and find ways of decreasing, or eliminating, unneeded spending. Set a monetary goal of savings every month to use to pay down past debts that are listed on your credit report. Paying down collections accounts will help you rebuild your credit over time.
Consolidate Debt
If possible, consolidate your debt. If you can secure one loan to cover the balance of several debts, while maintaining a low interest rate, you could save money over time. An advantage of debt consolidation is that you only have one payment to pay every month, making it less likely that you will forget a payment on one of your bills. Be wary of debt consolidation companies that make you pay money up front promising guarantees of quick elimination of debt and high credit scores fast. Debt elimination and good credit history don't happen over night, and anything that sounds too good to be true probably is.
File for Bankruptcy
Bankruptcy should only be used as a last resort when trying to restore credit and get out of debt. Bankruptcy will stay on your credit report for up to 10 years, making it nearly impossible to obtain credit cards, bank loans or other lines of credit during that time. While bankruptcy can offer people a discharge of current debt, it is always best to try to fix your current credit situation before considering this option.
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