Want to Rebuild with No Credit, Poor Credit, or Bad Credit? Here's How!
There’s no doubt that credit cards are a requirement in this day and age, and yet it’s easy to get stuck in credit quicksand if you’re not careful. While in an ideal world we would never make that mistake, there are times where you realize you’re knee-deep. Now it’s time to face reality and take stock of your situation so you can enact your own credit rainforest rescue.
Start off by evaluating where you are in the credit card quagmire. There are important differences in how you handle the situation depending on whether you have no credit, poor credit, or bad credit. Start here and you’re sure to get yourself out of this mess.
Starting Out: When You Have No Credit
We’ll start off with the no credit situation, which actually isn’t much of a mess at all. Having no credit simply means you haven’t begun your credit history, and lenders can’t yet be sure what kind of bet you are. Since credit cards are a necessity out there, it’s important you get started with one to establish a good credit history now. Even if you only use your card to pay for small purchases then pay the balance in full, by doing so you’re starting a story about what kind of risk you are for lenders. In the future this will affect the rates you get for your car loan or mortgage, ensuring you get the best rates rather than being turned down.
The good news about having no credit is that there are cards available for you. If you’re in university undoubtedly there will be booths offering student cards. These cards are available even if you’re living off student loans, and although the interest rate may be higher than your average card, you can use these to carefully build credit. If possible you’ll want to avoid paying that interest, so only use your card once in awhile to purchase something you can pay in full later. Also check your grace period – that’s the period wherein you can carry a balance on your card without paying interest. So if you have a grace period of 25 days and your part-time job at the café isn’t going to give you a paycheck ‘till Friday, you can go ahead and buy those textbooks now.
Some companies even offer a wide range of student cards to meet your needs, so take a good look at what is available. You might find a card with no annual fee, a low interest rate, or rewards at your favorite retailers. Having a credit card on hand will undoubtedly make it easier for you to rent a car for spring break, or order secondhand texts online. When you choose carefully you’re well on the way to credit card freedom.
Outside of school you can also look at secured credit cards. With this type you pay a deposit down to open the account, and the deposit may then be accessed by the lender if you miss a payment or are late. Although the credit card limit on these may be fairly low to start, and is typically equal to the deposit you have put down, secured cards still offer a safe way to start building credit.
There are a few “gotchas” to consider here though. Secured cards have higher interest rates and set-up fees. Naturally the interest rates on these are higher than on other cards since you haven’t yet established a good credit history. It is best to use these purely to build good credit, and therefore only purchase small items when you can pay the balance in full within the grace period. The other thing is application fees, which may or may not be reimbursed if your application is turned down. Ask when you apply.
Be sure when you choose a credit card to build credit that you only consider cards with a recognized brand name such as VISA or MasterCard. Although you may find cards offered by companies other than your recognized financial institutions, be weary. Banks often offer secured or student cards in part of their line-up, and by choosing them you get a recognized card that you can trust to build your credit. This also means you will be able to use your card in more locations and won’t end up realizing your favorite retailer doesn’t accept your card.
Everybody Makes Mistakes: Poor Credit
Although a daunting term, poor credit simply means you haven’t got great credit, and that’s just a matter of planning and making some better choices. Don’t get discouraged, you can help get past a few little bumps on the credit card highway.
You will want to get your <a href="http://www.creditave.com/credit-report/">credit report</a> on hand so you can see exactly what you need to work on. The three big agencies that handle credit reports are Experian, TransUnion, and Equifax. Legally you are entitled to one free credit report per year, which you can get by visiting <a href="https://www.annualcreditreport.com/">AnnualCreditReport.com</a> After that you can get a credit report from these companies by paying a fee.
You may notice a few things in your report such as one or two overdue or missed payments, or several “revolving” accounts like credit cards. If there are mistakes on your credit report, contact the agency and ask about getting the form to resolve such concerns. Watch out for accounts that aren’t properly shown as closed by the lender, and be vigilant for credit accounts you didn’t open yourself.
If you need help making payments you can consider switching to a low-rate card or to one that offers a 0% rate on balance transfers, however, too many requests for credit accounts can look trouble-some to lenders. They don’t want to see you grabbing card after card, just in case it really means you can’t live within your own means. The best thing to do with poor credit is keep making your payments on time and continue building better credit.
Finally, understand that banks compete for you – if one refuses you a credit card because of poor credit, you might try another. Although you don’t want to damage your credit by having one lending institution after another investigating it, since this can again make it look like you’re madly grasping for credit accounts, you might consider this. As well, if you are looking for a car loan or mortgage a frank discussion with your lender is warranted. Each lender has its own policy on what scores fall within guidelines, and with a little honesty and commitment you might find you can get what you want as you rebuild that credit.
The Big Uh-oh: Bad Credit
Let’s get real – sometimes we don’t just end up knee-deep but shoulder-deep in the muck. That said, like any intrepid adventurer, the first step is taking a good look at your surroundings and what you can use to make that great escape. Flailing desperately will only sink you deeper in quicksand. Bad credit means you have missed several payments, gone into default on loans, or even declared bankruptcy. While we never intend to go there, once it happens, the only thing to do is pull together and start climbing back up that credit hill again.
So what do you do? First recognize that rebuilding credit will take time but is achievable. If you still have a usable credit card and other loans, use them perfectly. You must make your minimum payments on time. Use your credit card only when you will be able to pay the balance in full, yet do use it – credit cards that go unused cannot help rebuild credit either, and the account may be closed if it’s not being used. Over time you will rebuild good credit.
Second, don’t fall into the luring claims of “instant credit repair” by debt consolidating companies. Often these companies are operating illegally, even requiring you to pay for the service before you’ve realized they’re not helping at all. There is nothing these companies can do for you that you can’t do for yourself for free and over time. There are no instant fixes, so if it sounds too good to be true, it is. That said, your bank offers financial advisors who can help you work this out. Don’t hesitate to ask them for assistance – confidentiality will be maintained and you’ll gain the benefit of financial experience. Otherwise visit your local library and borrow some books on finance and managing credit. Inevitably you’ll gain a little more knowledge without paying big. With time and care you will turn bad credit into good credit.
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