What To Do if You Have Bad Credit

Credit scores represent the level of confidence that lenders have that you will pay the money you have borrowed. You can have a very poor credit score, an excellent one, or anything in between. Credit scores have a range of between 300 and 850, with the lowest figure representing good credit being about 670. Below that, your credit score is wanting. 

What bad credit means

Of course, you will have no problem obtaining credit if your credit score is exceptional. You can find companies offering credit cards for good credit or a fair credit rating. However, when you have a bad or very poor credit rating, you may find it difficult, if not impossible, to obtain a lending. Even if you manage to get a loan, you will have to part with a lot of money in the form of interest rates. The high-interest rates compensate a lender for the risk of non-payment that you present.

Bad credit represents a failure to keep up with timely payments or the inability to pay them altogether. You may also have bad credit because of your prevailing legal judgments, bankruptcy, or federal tax liens. 

Other cons of a bad credit rating

Having a bad credit score puts you at a disadvantage, especially when you need some quick money for necessities such as a home renovation or a funeral loan. You may also be charged higher rates on insurance quotes if you have a poor credit score. Moreover, if you want to rent a house, your landlord can charge a higher security deposit if you have a bad credit rating. In a worst-case scenario, you may fail to land a rental or lease agreement. It is, therefore, important that you keep your credit score good or exceptional. 

How to change a bad credit score

All hope is not lost when your credit score is poor. You can still turn it into a good score with the correct strategies. Below are some steps you can take.

1. Check that your information in credit bureaus is accurate

Credit bureaus or credit reporting agencies collect and compile your credit history into a report. Different agencies maintain their separate records of your data and can register different credit scores depending on the information that they have in the record about you. There could be omitted information and errors that can result in a bad credit rating.  You need to check, at least once a year, that the information contained in these bureaus is accurate and up to date. 

2. Dispute negative information from your score

You have to hands-on with your credit score and seek to remove negative information overtime. You can do that through a credit report dispute. Each month, your creditors will send information about your account to one or more credit bureaus. It is common for these reports to contain errors. You can dispute any information that is out of date, unverifiable, inaccurate, and incomplete. Negative items can only be on your report for a maximum of 7 years, while bankruptcy can stay up to a decade.

You can make your dispute by mail, over the phone, or online. Disputing your credit by mail is the best method as it allows you to keep a paper trail that you can use if the bureau does not report in time. Credit bureaus should respond to your claim within 30 days or an additional 15 days if you send more information during the investigation period. You can sue for amounts up to $1000 if they fail to respond within that time.

3. Stop missing payments

Missing payments only make your bad credit score worse. We all forget to make payments, but you can solve this by setting up a direct debit. If you are down financially, you can let your lender know so that you can arrange with your lender for a more friendly repayment plan instead of defaulting on payments, which worsens your credit score.

4. Use your savings to cut your debt

It is best not to hold on to savings while you owe money. You can use some of your savings to pay your debts so that you can better your credit score. If you fail to pay your debt, you may be earning less interest on savings than the interest you are accumulating on debt. 

Do you have a poor credit rating? Try the above methods and watch your credit score improve.