How to Move Forward With Bad Credit

So you may not have the best credit score – it happens. Maybe there were some surprise expenses you had to account for that didn’t fit into your regular budget, or maybe you just got behind on your bills and were never able to fully rebound. It can be hard to get a credit card, take out bad credit auto loans, or even secure a decent mortgage with a bad credit score following you around, and the answers aren’t always obvious. Everybody has their financial ups and downs and when things look bleak, bad credit can really feel like a crushing weight on your shoulders.

Luckily, it doesn’t have to be this way forever. Much to the relief of many borrowers with bad credit, there are actually several smart steps that anyone can take to get a bad credit score back on track. There’s no immediate fix to a bad credit score, but by following some simple advice and taking on the challenge with a bit of confidence, you too can turn around your bad credit score and get yourself on the road to financial freedom in no time.

Settle Up Your Debts

It’s probably the most obvious, but that’s because it’s the most effective and simplest solution to bad credit: pay off your debts. Carrying debts for long periods is what drags your credit down, and paying off debt responsibly raises your credit. That being said, until you pay off the debts that have brought down your score in the first place you’ll never be able to recover your credit.

Lenders will be able to see any debts you are currently carrying and will likely make their decision of whether or not to lend to you based on how well you act as a borrower. If you have a history of taking out loans and never paying them back, then don’t expect to have much luck getting another one. However, if it’s obvious that you have been able to pay off your debt – even severe debt – this speaks volumes for your character as a borrower and could give the lender some perspective for your bad credit score.

Take Out A Bad Credit Auto Loan

For many consumers with bad credit, the best way to start rebuilding credit is with a small, manageable loan. By taking on a new loan and paying it back responsibly, you start to rebuild trust with your lender – and this trust will be reflected in your credit score.

A bad credit auto loan is one of the best kinds of small credit-building loans for consumers to take on, as they are often for only a few thousand dollars and can be paid off in small monthly payments over a long time. While these loans do typically tend to come with higher interest rates than those for consumers with good credit, simply having something to pay off will only do good for your credit score. Paying back small loans like these will open the door to bigger and better options with a better credit score.

Get A Secured Credit Card or Credit-Builder Loan

In some cases, a consumer’s credit may be so bad that even a bad credit auto loan is too hard to secure. In other cases, the consumer might not need a car but still might need a good way to start rebuilding credit. For them, a secured credit card – usually available through your bank – is a great idea.

The idea behind a secured credit card is that you’ve “secured” the creditor with a down payment, usually a few hundred dollars, that goes as a security deposit on the card. Although these cards tend to charge higher interest rates for balances carried, simply paying off this small, short-term loan regularly can offer a serious boost to a bad credit score.

Many banks also offer loans specifically designed for those working to rebuild credit. These credit-builder loans often involve a small loan – usually around a thousand dollars or so – that is actually put into a savings bond. Once the borrower pays off the loan, he or she actually gets to keep the interest earned. That means that not only will your credit score go up from responsibly paying the loan off, but you’ll actually make a little bit of money on the side as well. For those in dire financial straits, this can be a great option.

Develop Good Financial Habits

A critical aspect to maintaining a good credit rating is consistency in good borrowing behavior. Good credit is built slowly, through repeatedly paying bills on time and not carrying debt any longer than necessary, combined with a secure income and a varied investment portfolio. It really takes a good deal of focus and some savvy financial work to maintain excellent credit, but really this is based in responsibility as a borrower and reliability in paying off bills on time.

By developing good financial habits, you set yourself up with what is really the best defense against taking a hit to your credit. This can start slow, with only one or two loan payments at a time, until things start to even out. Once you’re back on your feet you’ll already have good borrowing habits and can start making those steps to improve your credit even further.

But, understandably, not everyone knows the right way to manage finances. Luckily, there are professionals who are here to help.

Consider Seeing A Credit Counselor

As with most of life’s major problems, there’s probably someone else who knows the solution and is willing to help. For bad credit, this help can come from a credit counselor, who can sit down and go over your credit with you to determine the best steps for getting your credit back on the right track. Whether that involves you setting up a payment plan or looking into refinancing your current debts is between you and your counselor – but whatever it is, having the help of a professional is always a good idea.

These are some of the most basic tips for getting a bad credit score back on the right footing. Not every solution is guaranteed to work for everybody but, in general, these are some of the best actions you can take toward securing your financial freedom from a bad credit score.
Follow this advice and you’ll be back on your feet in no time- and you’ll know how to stay there.