You may have been counting on that loan but then discovered that no reputable bank will accept you without charging absurdly high interest rates. The problem: You’ve got bad credit. Impossible to fix? Not at all. You can repair bad credit and even do it for free if you know how.
Your credit worthiness is largely measured and tracked by a number that is known as the FICO score. FICO stands for the Fair Isaac Corporation, and your FICO score is a number between 300 and 850. If you score is 800 or above, your credit is golden, and you may find banks and other financial institutions practically begging you to borrow money. But if your score if below 650, you may have problems, and if your 400 or below, you may count yourself lucky to even have a bank account. The FICO score is used by the nation’s three primary credit reporting agencies and is a kind of numerical picture of your credit worthiness and is calculated by taking into account the many different elements of your credit history.
Repairing bad credit can be highly personal, and the first steps require self-discipline and the determination to stick to the process and keep financial commitments. Although you can do this for free–indeed, the information is freely available at ftc.gov, you may want the assistance of a professional credit counselor.
After you have resolved to restore you credit worthiness, it it vital that you get a copy of your credit report. The Federal Trade Commission (FTC) has set up a special website for this purpose, annualcreditreport.com. Federal law entitles you to a free copy from each of the three major credit bureaus, Transunion, Experian, and Equifax. We recommend that you take the time to get a copy from each agency. Why this is important will become clear in the coming paragraphs.
It is absolutely imperative that once you have your credit reports, that you carefully read through them and note each and every mistake. Can you really expect to find errors? Estimate of credit reporting errors claim that the range of reporting errors falls between 8% and 40%. The kinds of mistakes you might find include mistakes in your name, address, age, work and loan history, and even in the legitimacy of accounts. That is, it is not unusual to find loans listed that you have never taken out and even loans that you paid back listed as in arrears. For this reason, you absolutely must take the time to repair each mistake that you find on each report.
One of the keys to restoring credit worthiness is establishing a budget that is realistic for your income and debt load and then sticking to it. To do this, you must list out all of your sources of income. If you have just one source, this will be easy, but do not overlook anything, no matter how trivial you might think it is. Once you know your true income, make note of your fixed expenses. You want to focus on essential fix expenses such as food, rent, electricity, car payments, and so forth. Next, make note of all your other expenses, and draw a line through those that you think you realistically do away with altogether. Keep this realistic. If you normally go out for dinner twice a week, consider making it once a week or twice a month rather than eliminating the expense altogether. The idea is to make as complete a picture as possible of your expenditures and then reduce or eliminate as much as possible.
Once you have determined a working budget, you must make a list of your creditors and how much you owe on each account. Contact each creditor to let them know that you want pay off your debts. You will need to discuss your situation and try to renegotiate the terms of your debt.
Restoring credit worthiness is not complicated, but neither is it really easy. Because it is so personal, it may be one the hardest simplest actions you have ever undertaken. However, repairing bad credit and raising your credit score is all within your grasp and is entirely realistic. You can restore your credit reputation if you persist and stay the course.