Getting Credit With A Low Credit Score
If you Have a Bad Credit History you Still Have Credit Options.
If you have a bad credit history you’ve probably already run into some roadblocks when it comes to being approved for credit cards, personal loans and mortgages. Don’t give up! A low credit score doesn’t spell the end of your credit options. Rather think about it as a temporary barrier to credit, and take the time to pay off your outstanding debts towards the rebuilding of your credit score.
It is possible to rebuild your credit score – even if you have bad credit!
To many that statement is a myth, but trust me, you can rebuild your credit score to a point where creditors will again be offering you credit cards, personal loans and even mortgages with decent interest rates. All you have to do is pay off any large outstanding debts that you currently have. You can start by making regular payments instead of missing them and defaulting on monthly payments all together. Missing payments is probably exactly what got you into trouble in the first place. Am I wrong? If you have numerous outstanding debts then debt consolidation, or the paying of all debts under one consolidated (or lump) payment may be your best option.
Debt consolidation will help you manage your debt better. With a debt consolidation, all monthly payments are made in one lump sum at the same time every month, so you’re taking care of all of your debt at once, and likely making regular payments instead of missing certain ones. Paying off all of your debts in one consolidated lump sum will also help you keep your payments organized. Because the consolidated payment will come out of your bank account the same time every month – with the same amount of payment – you will become accustomed to it and ensure you have the money in your account to cover it. This one large monthly consolidated debt repayment will give you positive marks towards your credit history.
I liken those who can’t get out of their bad credit label to being caught in the “bad credit trap”. This is how the bad credit trap starts:
- You miss payments on your credit cards and loans
- Suddenly you can’t get a credit card or loan without a high interest payment.
- Suddenly you’re paying higher interest on the debt you typically carry over from month to month on your credit cards.
- Your credit score continues to decline; while the interest rates available to you continue to increase.
- You bury yourself in deeper debt.
See, you’re caught in the bad credit trap!
Now it’s not the end of the world to accept a credit card with a higher interest payment –after all that might be all that’s available to you. However if you do take a higher interest credit card or loan, you can use it to your advantage to actually improve your credit score like this:
- You have a bad credit score and can only get a credit card with higher than average interest rates.
- You accept the high interest rate credit card.
- You watch your spending and only charge necessary items.
- You don’t spend more than you can afford, so you’re able to make regular monthly payments.
- Every month you pay off your full credit card balance you are actually improving your credit score.
- After 3 to 6 months you’re suddenly being offered credit cards with fairer interest rates.
Here are some additional tricks to rebuilding a poor credit score:
Get a small loan – and pay it off quickly. This shows stable credit payments and responsible credit behavior, which says to creditors that you are a responsible borrower.
Get a credit card with a high interest rate – pay off the full balance every month. Showing creditors that you are responsible enough to get a loan or credit card and pay it off every month is the quickest way to improve your credit score.
Transfer high interest debt to lower interest credit cards – You can start doing this after making regular payments. At that time you will be offered credit cards with lower interest rates. Take advantage of this by transferring the outstanding balances on high interest credit cards onto those with lower interest so that you can keep up with payments. This will help improve your credit score and credit worth in the eyes of lenders.
Secured credit is your ally – Secured credit cards and loans allow you to have full use of a credit card with low interest rates – because you front a deposit that is treated like collateral by lenders. This means that if you don’t’ pay your credit card balance off; your deposit will be used towards it. To get a secured credit card you often need a deposit of at least $1000; however sometimes lenders will ask for personal assets – such as your home or car – be put up as collateral.
Report responsible credit behavior – As you rebuild your credit report by making regular monthly payments on the balance of your credit card, you will want to make sure that the top 3 credit agencies know about it. Therefore before signing for a secured loan or credit card, check that part of your borrowing agreement included a clause that your lender will send reports on your responsible repayments to them. This way, your stable repayments is tracked, shows on up your credit report and goes towards improving your credit score.
Curb your borrowing habits – In order to rebuild your credit report its imperative that you don’t return to bad credit spending habits or erratic credit behavior. This means resist the urge to apply for loans and credit cards from every company that comes your way. Responsible borrowers only borrow what they can afford to pay back - always remember the bad habits that resulted in your bad credit history in the first place.
Examine your credit report – Get a free copy of your credit report (to find out how read our article How to Get a Free Credit Report) to see if any errors exist on it. Locating and alerting the credit agencies to errors will improve your credit score in the shortest amount of time. Oftentimes errors such as open accounts that were actually paid off in full still exist and are dragging your credit score down. A quick check of your credit report can locate and fix these errors.
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