Help I have Bad Credit!

Most of us don’t check our credit until we need to borrow money, usually for a car loan or a home loan. Unfortunately, having a bad credit score will not only affect your ability to get a loan, but it may also affect the interest rate you pay on that loan. In other words, having bad credit will cost you money!

If your credit is poor because you can’t pay your bills, you don’t need credit repair services. You need to determine how to best pay your bills so that you can finally repair your credit. If you are swimming in debt, consider a second job to pay off creditors, or talking to your creditors to arrange for better terms to help you pay off your debt. Credit Counseling companies help you consolidate your debt and negotiate better terms, but they don’t do this for free. If you choose this route, make sure you work with a reputable company, and read the fine print in whatever contract you sign.

If you can pay your bills but have a low credit score, it’s time to rebuild your credit. A bad credit score can be rebuilt in approximately 3 years, but the last 12-24 months are most important. Here are 4 steps to help you raise your credit score, and make that bad credit a thing of the past:

Pay all your credit card, car loans and mortgage payments on time. Approximately 35% of your credit score is calculated from your history of on-time payments. So make on-time payments a priority in your financial life. Mortgage payments and car loans should be set up to automatically be deducted from your checking account every month. Many credit card companies now allow you to deduct either the minimum payment or the full payment from your checking account as well.

Remove any errors in your credit history. Approximately 75% of all credit reports have errors. Pull your credit reports for free at from all three credit reporting services and check for errors. Then follow the instructions on these websites to dispute any transactions on your report. If the creditor doesn’t respond to the dispute within 30 days, the item must be removed from your credit report. You can pay Credit Repair companies to do this for you, but it is a fairly simple process unless your credit history is riddled with errors.

Work on “Credit Management”. Don’t use more than 75% of the credit limit for any credit card you have. This is true even if you pay your credit cards off every month. Get the credit cards that work for you (with lower monthly interest rates, nice rewards, etc.) and keep them long term.

Plan on about 6 months for these steps to take affect. With more serious payment and credit management issues, you may need to wait up to 2 years before your credit has improved significantly. But stay diligent and these small steps will help you reap big financial savings when you buy your next home or car.