Living with bad credit in a country where your credit is the metric that determines so many things about your lifestyle is difficult and disheartening. It can cause a great deal of anxiety and frustration to tackle these issues head on, but it is also the only way that the situation will be resolved. Here are four essential and relatively simple steps you can take to get on the road to credit repair and help you get a sound understanding of how credit repair works.
1. Don't Hide From The Situation
When things go wrong with your finances and it feels as though there's nothing you can do to change the issue, it can be tempting to pretend the problem doesn't exist to save your own sanity. The problem with this is that while you're turning away from the problem, charge offs, interest and angry voice mails from creditors continue to pile up.
There are a number of websites that offer a free, detailed credit report which will allow you to view your outstanding debts in a concise way and know what creditors you owe money to. This basic step will allow you to move forward in repairing your credit by arming you with the facts about the issue. Whether things are better or worse than you thought, the reality of the situation is not one that you should continue to avoid.
2. Find Any Errors And Make Arrangements With Debtors
As you review your existing debts, you may find items on your credit report that you feel could be in error. Perhaps a medical debt from long ago should have been shifted to an insurance policy, or you wound off paying off a debt from a utility company but the negative mark continues to linger. When this happens, it is very important that you gather whatever evidence you have that the item listed on the report is inaccurate. No creditor will just take you at your word- you have to have proof. This can be difficult, but if you are certain you are right and you have the documentation to prove it, you can have mistakes removed from your report and improve your overall score.
When you look at your report, you will no doubt see existing debt listed that does not surprise you. In these cases, the best thing you can do is to contact the company or entity to whom the debt is owed in order to make payment arrangements that are amenable to both you and them. Most debtors will be willing to work with you, since the alternative on their end is a charge off or a loss.
3. Make Your Payment Arrangements Reasonable
It is crucial that you choose a payment arrangement that you will actually be able to make. Getting all your debt paid off in six months or a year is a lofty goal, but if you fail at making your arranged payments, you will be right back at square one. For this reason, many people with bad credit choose to go into credit counseling or research economics in order to understand what percentage of their income can reasonable go toward paying down their debts.
Another option for those who qualify is a debt consolidation loan. This means that a bank settles your existing debts into one lump sum, which you then pay to that bank in a single incremental payment- generally, one payment per month. If you are considering doing this, be very certain that you are working with a reputable company. Look for a company that has been positively reviewed by independent sources- do not simply take success stories on a website at their word. There are plenty of companies waiting eagerly to prey on people who are already in debt, and you must be very careful if you choose to enlist any outside help in this matter.
4. Pay On Time, Every Time
It goes without saying that there are a number of factors that can be at play when a person has bad credit. The sudden loss of a job, a long term illness or an unexpected financial burden can all take a financially solvent individual from the black to the red. However, when you begin repairing your credit, it is essential to understand that you must make every payment on time without exception. This may mean scaling your lifestyle and recreational budget back in a significant way. This sacrifice is what will assure that you are able to accomplish your goals.
In order to facilitate this, you must have a reasonable idea of your monthly income with very little margin for errors. Creating a budget that helps you understand what you must spend on your rent or mortgage, essential utilities, food, car and other imperative expenses will help you to understand exactly how much money you have to work with and make your arrangements accordingly. Debtors who feel you are not taking a payment arrangement seriously can terminate the arrangement, potentially putting you in a worse situation than before.
During this time, it is essential that you not take on new monthly expenses if it can be helped. Recreational items and trips can be tempting, but they will only set you back from your initial goal. By continuing to practice responsible financial behavior and make payments on time, your credit will begin to improve. This will relieve a lot of stress and open the door for opportunities you may have thought were far out of your reach.