Working your Way out of a Bad Credit Situation

If you are struggling with bad credit, take some comfort in the fact you are not alone. Recent statistics suggest that 25% of all Americans are in a bad credit situation.

Do not despair though, as there are many ways you can rebuild your credit score. Using a credit card designed especially for bad credit, for example, can be highly beneficial.

Many people find themselves in a bad credit situation through understandable circumstances. Illness, accidents, unemployment and separation are just some of the reasons. It can be hard to find the necessary money.

Yet missing just one repayment on a credit card, car or mortgage repayment can affect your credit score significantly. Miss more than one and you will find your rating tumble.

So what is a bad credit score? Generally it is deemed to be when you have a FICO score of less than 600. This is often termed the ‘sub-prime’ category.

Being in the sub-prime category means you will have less purchasing power. You may struggle to get credit or only be able to access it with much higher interest rates.

The best way to deal with bad credit is to make a plan. Sit down and look at your current financial situation. This may feel difficult but you need to know the truth.

Calculate if you can repay any money off these debts, even a small amount monthly. Creditors will often accept this payment because it shows you are making an effort.

It is far better to pay smaller amounts on time each week or month than promise more and fail to meet repayment dates, as this will harm your credit rating further.

If you feel overwhelmed in dealing with creditors, it may be advantageous to get professional help. There are many voluntary organizations that will assist you or point you in the right direction.

The benefit of using a professional intermediary is that you will not be contacted directly by creditors or bailiffs again. This can release the pressure and help you feel psychologically better.

Your professional advisor can also help convince your creditors to freeze interest amounts, which will reduce your repayments in the long-term. Many creditors will agree to this idea because if you declare bankruptcy instead, they will not receive any money.

Instead, you will make one payment a month which your professional company will then distribute amongst your creditors. As time passes and you meet your obligations, your credit score will increase.

Using a bad credit credit-card can be another good way of rebuilding your credit score. Companies will implement a higher annual percentage rate (APR) to begin with because you are classed as a risk.

However, if you meet each repayment on time then the ARP will be reduced by a certain percentage every six months. This will save you money and improve your credit score.

Improving your credit situation is achievable although it may take time, so be patient. It will be worthwhile and you will feel a great sense of achievement.

Guest Post by MSM

4 Responses to Working your Way out of a Bad Credit Situation

  1. The best way to improve your credit is to consistently pay your bills on time. Late payments can kill your credit score, so even if you can only afford the minimum payments you should make sure you pay it on time.

    • I have a buddy that just started to clean up his stuff and just attacking his debt to debt available ratio and optimizing it made a near triple digit change in the score

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