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How To Repair Bad Credit?

By Mike Richards Updated: 06/07/2022 Posted: 04/26/2018

The journey towards credit recovery is long and riddled with tough decisions. Getting into bad credit does not require any effort. However, how to repair bad credit? Getting out of bad credit is like climbing a steep hill with a huge load tied on your back. It requires sacrifice and extreme financial discipline.

Getting financing from traditional lenders on bad credit is a near-impossible task. Although non-traditional lending options exist, these attract very high-interest rates and fees. The problem with the latter option is that it sinks one further into debt and has the potential of worsening one’s credit score. This is why it is important to devote your effort, time and resources towards getting out of bad credit.

To help you start the steep climb out of a bad credit ditch, and whatever your reason for wanting to get out of bad credit (for example, for the purpose of buying a used car), you will find great practical advice you can start implementing right away.

Scrutinize Your Credit Report

The one thing you don’t want is to have a credit report with errors. Don’t just take what’s on your credit report as the truth and nothing but the truth. Credit reports contain errors. In fact, FTC has established that at least 5% of consumers find errors on their credit reports that could adversely affect their credit score.

Other findings from the FTC study indicated that 25% of consumers had credit-score damaging errors on their credit reports. Besides, credit reporting agencies were able to correct errors in one in four consumers’ credit reports. Four out of five people who filed disputes had their credit reports somewhat modified as a result. These modifications resulted in the change of the credit score of at least one consumer out of ten after the intervention of CRAs. FTC also reported that one in twenty consumers experienced up to 25 points improvement in their credit score as a result of the CRAs’ correction. In some rare cases, consumers (1 in 250) registered an improvement of 100 points in their credit score.

Should you find an error on your report, get the credit bureau to fix it. You might also want to get in touch with the creditor who reported the errors. It would be even better if the creditor can contact the credit bureau on your behalf.

Set Up Automatic Payment Reminders

One of the habits that hurt your credit score are late and missed payments. To be sure that your payments are made on time, set up automatic payment reminders. Some banks make this process even more convenient by setting automatic email reminders that you receive every time your payment is due.

To make sure that you never forget to make a payment on time, you could arrange with your bank to have payments be automatically debited from your bank account.

Use a Credit Repair Counselor

While it is highly advisable to seek out the services of a credit repair counselor, there are a number of credit repair counseling scams out there that you need to keep away from. One of the tell-tale signs that a CRC may be a scam is overly aggressive marketing that makes unreasonable guarantees. If they guarantee you that they will increase your credit score by over 100 points, walk away. No one can give such a guarantee; and although it’s possible to get this kind of results, it varies on a case by case basis.

A credible credit repair counselor will help you improve your credit score and get your finances in order. They should be able to work with you until your credit score improves. They should also have a proven track record of success in helping people move out of bad and into good credit. Besides helping you repair your credit, a credit repair counselor should provide guidance as to what non-traditional funding options are available to you. The counselor should also be courteous and respectful towards you. Their responsibility should be to help you get your finances back on track.

Adopt Financial Austerity Measures

Tough times call for tough measures. Repairing Bad Credit is not a walk in the park. There are habits that have to be changed. This is not the time to buy stuff on impulse. Everything you do from here on must be geared towards getting you out of the bad credit rut. For instance, you may have to slice up some of your credit cards, especially those with prohibitive interests.

If you have some valuables that you can sell and offset some of your debts, by all means, do it, as long as doing so will not interfere with your normal day to day functions. For instance, selling your car is not advisable if doing so will complicate your transportation needs. However, if you have a top-of-the-range car that can fetch a pretty penny, you might consider selling it in favor of buying a used car. The aim here should not be to stifle your normal function but to shear off any leaks in your finances and also go easy non-essential spending.

It is highly advisable to follow the ‘three T’s’ of financial recovery. First, track your expenditure for at least two months to have a clear picture of where your money is going. This will help you identify leaks and non-essential spending that can be dealt with immediately. Second, trim or prune the leaks and non-essential spending from your budget. This second part alone will get you out of bad credit quicker than any other measure. It, however, requires stringent discipline and sacrifice for it to have the intended impact. Finally, train or educate yourself as much as you can about how to stay on the good side of credit. The fact that you are reading this already means you are taking the right steps toward credit score recovery.

The other thing you might consider doing is to consolidate your debts. By consolidation here I don’t mean moving them around or extending repayment periods. Pay off the debts with the highest interest rates first. If this is not possible, get a financier who is willing to buy your debts and consolidate them into one loan with less punitive interest rates.

Another measure that should help you get out of bad credit is paying off your monthly bills on time. Rent, utilities and mortgage and car loan bills should be paid promptly. It’s important that, after implementing the three Ts, you set a budget and stick to it. This is not the time to make huge spending decisions, however attractive they may look. Your single-minded focus should be to work on improving your credit score and not to add on new debts.

It is also important to always pay off your credit card balance every month without fail. While at it, make sure you use the card responsibly. You might consider getting a secured credit card that you fund up front. You can then charge your expenses to your secured credit card. If used properly, a secured credit card can play a huge role in getting you out of bad credit.

Increase Your Revenue Sources

At the end of the day, having more revenue sources will tilt the balance of your credit score. As more resources become available, you are able to offset some of the punitive debts. You are also able to pay off loans within a shorter duration. Since most lenders do not penalize prepayment or settling your loan before the loan term expires, having extra funds could fast-track your journey out of bad debt. Always look for extra sources of revenue to strengthen your financial position.

The journey out of bad credit is long and arduous. But it is, nonetheless, a journey worth taking. The one thing you need to always have in mind is that tough times don’t last, but tough people do. If you make the right decisions, every step of the way, and stick to a predetermined budget, you will eventually come out of a bad credit situation.