Having bad credit can keep you from owning a house, a car, and more. Read on to learn how to rebuild bad credit and get your life back on track.
Struggling with debts or a poor credit rating? You’re not alone.
With the average household debt in the United States now standing at an unbelievable $137,000 on average, millions of us are living under the burden of their credit commitments.
And with that much existing debt, the idea of rebuilding our credit lines and repaying what we owe can seem impossible. But it doesn’t have to be.
We’ll talk you through how to rebuild bad credit and secure your financial health for the future.
Know Your Financial Health
If you’re looking at how to rebuild bad credit, the first thing you need to do is understand your financial health in its entirety. That means knowing your ingoing and outgoings, and getting a copy of your credit report.
Your credit report is the financial story you’re telling your creditors. It lists payment histories, existing and previous debts, where you live, and whether you’ve previously been bankrupt. You can learn more about it here.
By understanding your financial health, and having a full copy of your credit report, you can understand what problems may exist that stop you from accessing new forms of credit.
If your income is the problem, why not take on a side hustle or two? This list of side hustles for 2018 has some ideas you could run with, starting today!
Form a Sensible Budget
With a clear financial picture in mind, the next step is forming a budget that is affordable with your existing commitments and income.
Put simply, it’s time to cut out the lattes. Any unnecessary expenditure you have should be cut back as much as possible to allow you to repay any debts quicker. If you’re spending more than you bring in as income every month, cutting back your expenditure can help plug this deficit.
Be realistic with yourself, too. Leave yourself a little bit of cash for fun things to give you an incentive, or you may find the temptation to ignore your budget too great.
These strategies to organizing your finances could have a massive impact on your budget. By fully understanding your spending, you can begin to target any areas that could be having a negative impact on your credit rating.
Organize Your Debt Repayment Dates
After establishing a new, more refined budget for your household, it’s time to start identifying any existing debts.
Make a list of your current debts, and identify how often you repay. It might be a good idea to organize your payments, where possible, at the same time you get paid, so you don’t have any excuse to miss your payments.
Lost track of your debts? Your credit report should help. If you’re a sucker for bad credit already, it’s likely to be filled with large debt balances or payments in arrears.
If you’re behind on any payments, it’s time to reach out. These 10 tips for negotiating with your creditors should help you arrange repayment schedules you can afford.
Don’t Miss Any Payments – Ever!
If you’re looking at how to rebuild bad credit, one of the most important lessons you can learn is to never, ever miss a debt or bill payment. Not once.
Just one late payment can cause your credit score to drop 100 points. The longer it goes unpaid, the more damage it causes, and this will stay on your credit history for several years.
No matter what, pay your bills on time. Showing you’re reliable and consistent with your payments can help your credit history and get you access to better forms of credit, like a mortgage, in the future.
Lower Your Outstanding Debt Balances
You’re not likely to get any kind of credit – even bad credit – with a large debt balance already on file. With your budget in order, it’s time to start tackling your outstanding debt balances.
Funnel as much money towards your debt as you can possibly afford to lower your balances as quickly as possible. Target debts with the highest interest rates first, so that you’re not wasting your money on unnecessary interest payments.
Of course, the ‘snowball method’ of debt repayments could have a better psychological impact. This is where you repay debt from the lowest balance up, to see you reduce the number of outstanding debts faster.
Whatever your approach, if you’re reducing your debt balances, you’re making yourself seem a far more stable financial option to future creditors.
Get a Credit Card for Bad Credit
Opening new lines of credit may seem counterproductive if you’re already in debt, but it’s actually a good choice to make if you’re looking to help prove you’re more responsible, financially.
If you don’t have any existing credit you can use, you can demonstrate your commitment to regular repayments, which will be recorded on your credit report. This is a good final step on the road to demonstrating longer-term financial stability.
A credit card for bad credit is one source of credit, even if your credit score is currently poor.
Why not take a look at this article from Bonsai Finance to see what a credit card with bad credit could do for you?
Once you’ve demonstrated your commitment to rebuilding your finances with a credit card for bad credit, your credit score will improve, and you’ll soon be able to access better forms of credit in the future.
Knowing How to Rebuild Bad Credit Is Only the First Step
While an achievable budget is a respectable aim for anyone looking into how to rebuild bad credit, it’s only the first step in a long road towards better financial health overall.
It also takes commitment. There’s no point creating a budget, arranging repayment schedules and taking out new credit lines if you’re just going to ignore it and spend far beyond your means.
Keep your goals in mind, and keep your spending commitments affordable. If you’ve got your own financial tips to share, why not leave them in a comment below?
