Fix Bad Credit - Dealing With your Credit Score after a Big Problem
Sometimes those big bad problems can happen to you - bankruptcies, lawsuits, divorces, non-payment of taxes. These are the type of problems that can negatively affect your credit score in a big way. If you’ve faced a large problem that has ruined your credit, you need to take fast action and work consistently to raise your FICO score:
Tip #1: Give it some time
Many people believe that simply paying off debts will improve their credit score immediately. Unfortunately, this is not true. If you have experienced a bankruptcy, have had debt charge-offs, or have been reported to a collection agency, the record will remain on your credit report - even after you have repaid your debts and resolved the problem.
In fact, major problems such as a bankruptcy will remain on your credit report for seven or ten years, affecting your credit score. Even if your credit problems came from simply not paying bills on time, it’ll take a while for the mark to fade from your credit report and for your credit score to reflect your better credit history.
Paying off your debts and resolving problems will help your credit score (since overdue accounts will be marked as “paid” on your credit report), but only time will remove the mark of the problems from your record entirely.
For example, if you have faced a major setback such as a bankruptcy, you may have to wait to get the best interest rates on larger purchases.
The good news is that the further away you are from a major financial problem, the less impact it will probably have.
If you have declared bankruptcy, you can expect it to have a huge impact on your credit score for the first two years, during which time you will have a hard time getting ANY credit at all.
However, after two or three years, if you’ve been paying your bills on time, the bankruptcy from two years ago will matter less because you’ve been rebuilding your credit. Your credit will still suffer - but you’ll slowly be starting to work your way out of the credit problem.
This means that if you plan on making a major purchase (such as a house or car) that may require a loan, you should start working on improving your credit well in advance - even years in advance - of your actual purchase. This is because you simply will not have enough time to substantially alter your credit score in time.
Even if your credit score is already fairly good, you may need to give yourself several months of time to boost your credit rating enough to get the best loan rates.
Tip #2: If you have bad credit, establish better credit by taking out credit and repaying it quickly
If you have terrible credit following a bankruptcy or some other major financial disaster, you may get back into a better credit rating by taking out a loan you can handle. Make an appointment to see your bank or bad credit lender a few months or years after the problem in question and arrange for a small loan.
You should have enough savings to pay for the loan before you do this. Pay back the loan quickly. It will not hugely boost your credit score but it’ll show lenders that you are having an easier time paying your bills. Taking out a small loan you can repay is part of the slow process of reestablishing good credit following a big financial problem.
Tip #3: Try secured credit if you can’t qualify for other types of credit
Secured credit is credit or a loan which uses something as collateral. This could be an asset like a house or a car. In some cases, this collateral could be money frozen in an account by the bank for just such a purchase.
If you need credit following a big problem with your credit score, secured credit may be something you can qualify for. You can use this secured credit to reestablish a good credit rating so that you will qualify for other loans in the future. You may have to pay slightly higher interest if your credit score is still quite low, but in the long term repaying this type of loan can improve your credit score.
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