Good Advice for People with Bad Credit

If you are one of the millions of Americans with a poor or below-average credit score, have no fear! There are a few ways that could help rebuild your credit score over time. All it takes is a little planning and forethought. We have compiled a list of easy tips to help you get started.

Good advice for people with bad credit

1. Bills: Get Help From Your Creditors

The first step is to attempt to pay off any outstanding bills or debt you may have. This may sound difficult, especially if the pile has been building up over time, but there are options. Look at your income, then look at what you owe. Based on that, determine what you can afford to pay on each outstanding bill per month, then call your creditor(s). You’ll be surprised how willing they are to work with you to formulate a payment plan.

Be honest with them about your intentions and your abilities, and be clear that you want to come to a solution that is workable for both parties. They want to get paid, and you want to pay them. All that’s left to figure out is logistics.

Once you’ve caught up on outstanding bills, pay them on time as you move forward. This is crucial to rebuilding credit and avoiding this situation in future. Consider setting up automatic withdrawals for certain bills, eliminating any chance that you might make a late payment.

2. Use Your Credit Effectively

Once you’ve caught up on your debt, use credit more effectively. A good thing to keep in mind is the “70% Ceiling” principle. This basically means that you never use more than 70% of your available credit. Simply as an example; say you have $1,000 line of credit, in turn, you would never use more than $700 of it. And, of course, you pay off what you owe in full and on time.

Incorporate responsible credit use into your overall budget and you may begin to see the benefits.

3. Obtain a Secured Credit Card

Now that you have your existing debt on track, you can begin to think about building your credit. If you have a poor or below-average credit score, you may not qualify for a ‘regular’ credit card. This is when a ‘secured credit card’ becomes useful.

Basically, a secured credit card is attached to a savings account in your name that carries the balance of the card in full as collateral. This lowers the risk of the lender, but it also increases your chances of success in repaying any debt incurred on the card. Pay the card regularly and on time and your credit score will start to reflect your efforts. Secured credit cards are reported to the credit bureaus once a month, just like a regular card. 

4. For a Short Term Loan, You May Elect to Choose an Installment Loan

Getting your finances on track may mean bills are getting paid, but there is little wiggle room for unexpected expenses. Installment loans are one of the easiest to pay back without getting into a cycle of loan debt.  Additional growing debt makes it harder to pay all other bills on time.

Unlike a payday loan, installment loans have monthly or bi-weekly installments (terms vary by lender), like a mortgage or car payment.  With fees and interest, payday loans can be difficult to pay off in full with the next paycheck. Installment loans are much more realistic to pay back in full because payments are  spread out over a longer period of time. Every lender requires different terms and may be based on the borrower’s financial history.

Follow these helpful tips with hopes your credit score may increase over time. These are not ‘quick-fixes’, but they are solutions you can begin to implement today for long-term gain. It’s hard work, but the benefits are worth it!

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Consumer Notice: Our loans should be used for short-term financial needs only, not as a long-term financial solution. Individuals with credit difficulties should seek credit counseling. For more information, please see our Financial Wellness Page.