Itís hard to keep your credit intact when youíre going through a major life change like divorce, job loss, medical illness, or relocation. Your credit score can suffer in the process of these big changes, especially if you get behind on your bill payments. Foreclosure, repossession, bankruptcy, and debt collections are often the result of those big life changes that affect your finances and your ability to focus.
The credit system may not always seem fair, but on the bright side, you can redeem yourself from those big mistakes.
See Where You Stand
Start by checking your credit report and your credit score. These will give let you know where your credit stands. Your credit report contains the details of your credit history. Your credit score indicates whether your credit history is good or bad. Negative information, except bankruptcy, can typically stay on your credit report for seven years. Bankruptcy can be reported for 10 years.
Lower the Impact of Negative Items
If you have past due accounts that are just a few years old, consider paying them off. It wonít necessarily help your credit score, but it can help you move forward. Some lenders wonít approve new loan applications, unless youíve cleared up your old, past due balances.
Talk to the people you owe, they may allow you to pay just a fraction of the balance and call it even. Or, sometimes creditors are willing to remove the negative information in exchange for full payment on the account. Youíll have to ask for these types of arrangements. If the creditor agrees, make sure you get it in writing before you make payment. Follow up in a few months by checking your credit report to be sure your settlement or payment is reflected.
Add Some Positive Information
After taking care of your negative accounts, the next step is establishing a positive credit history. If you had accounts that survived your life change, for example, credit cards that you continued paying or a loan that never fall behind, thatís great. Keep making payments on those because the timely payments are helping your credit history.
You may not have any open, active, accounts in good standing. But you can open some. Positive accounts are key to re-establishing your credit history. You can use the ScoreMatch tool to find credit cards that fit your credit score.
If you have a low credit score, there will only be a few credit cards available for you. The ones that are available probably wonít be that attractive. They may have low credit limits, high interest rates, and unattractive fees. However, these cards arenít keepers. Theyíre just a means to an end. If this is all you can get approved for, donít charge too much, pay the balance in full, and dump the card as soon as you qualify for something better.
Another option when you have bad credit is a secured credit card. These cards require you to pay a security deposit against the balance. You may have to save up to get a good credit limit, but itís worth it. Secured credit cards are more attractive than other credit cards that cater to people with bad credit history. Shop around and look for a secured card with a good interest rate and low or no annual fee. If you find one that will convert to an unsecured credit card and it has great terms, you have a winner.
Once youíve opened a new account or two, make your payments on time each month. Be careful not to borrow more than you can afford. As time passes, youíll notice your credit score improve and after a few years, you may very well qualify for major loans and better credit cards again.