Incidents like serious illness, job loss, and the caring for a family member can cause you to incur debt that goes unpaid. And while the stress and damage to your credit may seem insurmountable, you have options.
Bargain with Collectors
Before you let any of your credit accounts fall into delinquency, bargain with the creditors. Ask if you can set up a special payment arrangement, and make sure that you stick to it. Settling your balances when you can will also have a positive impact on your credit report.
Secured Credit Cards
You never want to accept unsecured credit cards with high interest rates, which is why opening a secured credit card account may be your best option. You are typically required to give a security deposit in order to open this type of account. When you manage the account properly, you will receive your deposit back once you close the account (or within a specified time period). Be sure to choose a secured credit card that reports to all three major credit reporting agencies as this will help you establish a new, positive credit reference.
So many people rebuild their credit but end up making the same mistakes from the past. So when it pertains to opening new credit accounts, be extremely cautious. Create a budget, stick with it and instead of taking out a loan, try to save enough money to pay for your purchases with cash..
What Should You Avoid?
There are many options available when you want to rebuild your credit, but not all are good choices. When you are in the process of rebuilding your credit, you should avoid:
- Prepaid Cards – The fees are generally too high, and your credit activity is not always reported to the three major credit agencies.
- Credit Card Offers for Bad Credit – These offers typically come with small credit limits and high fees (upfront and monthly fees). Secured credit cards are your best options.
- Rent To Own – You will pay three to four times more for the merchandise purchased at a rent to own merchant, and your payments are not typically reported to the three major credit agencies.
Beware of Credit Report Double Jeopardy
Many people are not aware of credit report double jeopardy and the negative impact that it could have on their credit history. When a collection account is not paid, it could be sold from one collection agency to another. The amount of the accounts and the amount that you owe is generally inflated at this time. To make sure the debts are actually legitimate, go through your credit report from all three of the major credit agencies and find the duplicates. Dispute any duplicates that are on your account.
Pay Credit Accounts Down and On-Time
When rebuilding your credit, you should not only pay your lenders on-time, but you should pay down your balance as much as possible. It is important to establish a great paying-history; this demonstrates that you can pay your credit accounts as agreed, and it also shows lenders that you are able to manage your money. Missing even one payment could have a negative impact on your credit score.
If you are unable to pay the entire amount due for your credit account, you should pay more than the minimum amount being requested. When you pay down your credit accounts, and make on-time payments, your credit score can improve. This will also show lenders that you are trustworthy and diligent, in terms of paying off your debts.
Do not be discouraged if your credit takes a turn for the worse. Instead, use these tips to rebuild your credit and get back on the right track.