It’s certainly frustrating to deal with bad credit loan, especially during the pandemic. However, there’s a silver lining to this- you can actually start rebuilding your credit and get back on track as soon as possible.
Instead of doing convoluted and technical things there are actually simple things you can do to get out of bad credit. Here are 5 of them:
Pay on Time
Bad credit doesn’t go away on its own. More often than not you’ll need to take action to get some crucial points and re-establish good credit.
The first thing you’ll want to do is be a responsible consumer, financial-wise. This means you should now pay attention to your credit card bills and pay at least the minimum on time.
Round up a list of your owed balances and the corresponding due date. If it’s not possible to pay them all, call the institution and explain the situation to them and they can probably work out a payment arrangement with you.
Getting hit with a late payment can cause your score to drop and remain on your name for several years. Payment history is important and should take top priority if you want to rebuild your credit score.
Try to Keep Most Of Your Credit Limit Available
You may not know it, but available credit is also a major factor in determining credit score.
This is known as ‘credit utilization’ and can be computed using a basic calculator. Financial experts recommend having a ceiling of 30% in terms of credit utilization. For instance, you have a 100k credit limit, and 30 percent means you should ideally use only 30k maximum as your credit balance.
To get a sense of your credit utilization, make a list of all your cards and put down each balance and credit limit. Tally it up and you should have an idea of how much you should pay to bring it down to less than 30%. After you’ve achieved this try to maintain it within the 30% limit.
Get a Secured Credit Card
A secured credit card operates somewhat differently from regular credit cards. They’re beginner-friendly in that they cater to people who don’t have a credit score and are looking to build it up.
The ‘secured’ aspect mainly involves making a deposit before you’re allowed a credit card. The amount may vary from one lender to another but it’s usually the credit limit balance.
After you get a secured credit card you should treat it like a regular card. Pay off at least the minimum amount every month by the due date and don’t take out more than 30 percent of the limit at a time. As an added bonus, you should do your research and choose a secured credit card company that reports to all 3 major credit bureaus.
Be Careful with New Credits
It’s easy to overspend when it comes to getting approved for a new credit card- you’ll want to buy all the things you need and worry about them later.
However, you’ll be hit with a large balance that you may not be ready for, and soon you’ll be accumulating a large enough balance that you won’t be able to pay off. This can be detrimental for those who are looking to improve their score.
On new lines of credit you’ll want to assume the same rule- pay on time and don’t spend more than 30% of the total limit. As long as you follow the credit utilization and payment rule then you’ll be able to lift up your bad credit in due time.
Get Help With Debt If It’s Needed
If debt is the main reason why your score is low then you will want to address it as soon as possible. Spend some time computing the minimum monthly payment you should be making on all your owed balances, then include it in your budget. If your income isn’t enough then you can either get a higher paying job or supplement it with some side hustle or gigs.
Don’t be afraid to take out a loan and consolidate your debt using a balance transfer. Aim for a lower interest rate if possible, then make sure that you pay it down each month until everything is zeroed out.