Bad credit can make your life awful. You probably know that by now.
When you try to rent a home or apartment, bad credit can make it difficult to find a place.
Many insurance companies do credit checks and base your coverage on how risky you’d be to have as a client.
Loans and credit cards with decent APR are out of your reach, leaving you only with the loan sharks such as those blood-sucking pay-day loans.
But despite how you might feel about it, having disastrous credit isn’t the end.
There are ways for you to recover.
1. Start Emergency Savings Account
When you have bad credit, you want to create a plan involving both immediate and long term goals. Immediate goals are ones that you need to fulfill quickly.
The good news is that when your credit is at rock bottom, the only place to go is up.
You get to decide what that means specifically. You get to look at your life and decide what you want to put in place as your goal right now.
You should start by setting up an emergence savings account.
The thing about emergencies is that they always happen and yet few people plan for them. Your vehicle could break down at any time! Your heater could go out in the middle of cold freezing winter! And what if the unthinkable happens: you suddenly lose your job?
The first step toward repairing your credit is to make sure that you don’t end up in a position that’s going to make it worse.
So that means you need to have a savings account.
For practical purposes, you need about three months’ worth of your living expenses put aside in savings.
2. Call Your Creditors
Your next goal - and one that you should do quickly - is to reach out to every one of your creditors. Don’t avoid them. Make payment arrangements to bring any late accounts back up to date.
Make sure you get this in writing. Many creditors are more than willing to work with you. While you can go to a credit counseling service to manage your credit rebuilding, do your homework on them before you make that decision.
Many people choose to go this route when rebuilding their credit because they think a credit counseling company can get credit card companies and other creditors to lower the monthly interest fee and waive late fees.
While it’s true some can do that, so can you. Some people think that using a credit counseling service is a great way to rebuild their credit, but that’s a myth. Late payments are put on your credit report anyway.
Plus, when you use a credit counseling service, you have to pay them a fee. This fee could be applied to your outstanding debt to get your credit back to a better score.
So your immediate goals once you have your money in savings and you’ve arranged to get your debt payments back on track is to do whatever it takes to keep these bills paid on time in the future.
3. Use Credit Repair Agencies
Some people choose to use a credit repair agency to fix their credit rather than do it themselves. If you do that, you should know that not every agency is reputable and the work they do is exactly what you can do.
Just like you would do, they get a copy of your credit report from all of the credit reporting bureaus. They have to get copies from all three because not all of them will contain the same information.
They’ll look over the reports for things that aren’t accurate and you’ll have to prove that they’re not true. An example of this would be if a John Doe Jr. has a bad debt that appears on John Doe Sr.’s account.
Once you prove that the information on your credit report isn’t true, the proof you have is then sent to the credit bureaus. Any information contained in your credit file that’s wrong must be deleted according to the law.
And the good news is that a credit bureau only has 30 days to answer and handle the dispute. That’s good news for anyone who’s looking to recover from disastrous credit and wants to buy a house or car in a short amount of time.
You can usually get discrepancies on your credit report handled faster and with less time and headache than if you did it yourself. Plus, a reputable credit repair agency usually knows the laws affecting consumers’ credit more than the average consumer does.
They know what rights you have or don’t have. But everything a credit repair agency does, you can also do yourself. You should also be aware that these companies can’t act outside of the law.
If you legally owe a debt and it’s within the correct parameters such as date, amount and late history, then a credit repair company can’t get it removed any more than you can.
Any debt that’s on your credit report must be 100% accurate. If it’s not, only then can it be removed. A credit reporting agency can act fast to help you correct inaccuracies, but they can’t force your score to go higher anymore than you can.
So if any company is promising to boost your credit score by a certain number of points, don’t trust them. Also, don’t pay them before they do what they can to repair your credit.
While it might seem strange not to give them money before they do the job, it’s against the law according to the Credit Repair Organizations Act for them to make you pay for the service first.
4. Hire an Attorney to Repair Your Credit
There is a case both for and against hiring an attorney to repair your credit. In some cases, you won’t be able to do it alone unless you do hire an attorney who specializes in credit repair.
But in other cases, you can do it on your own without hiring the attorney. It depends on the situations that affect your credit. Sometimes, when consumers try to get inaccurate information removed because the original debt was bought out by a collection agency and sold a few times over.
Everything gets mired down, confusing and the debt can be mistakenly labeled as verified when you know for sure that it isn’t. The amount of the debt is wrong and there are other inaccuracies.
When the credit bureau makes a mistake like that, it will take a lawyer to fix it if - after sending in a certified letter - you don’t get any satisfaction. Some people think that hiring a credit repair attorney is just like hiring a regular attorney.
It is. A reputable credit repair attorney usually works out fees differently. You may have to pay a small fee up front which can range from $20 to $100. You’ll then pay monthly fees until you no longer require their services.
What a credit repair lawyer can do is look at your reports for errors as well as ways to boost your credit score since they know the laws that can help you with that.
They can also get certain negative information removed such as inaccurate accounts from collection agencies or foreclosures. More often than not, a credit bureau will respond faster to an attorney than if you were doing it yourself.
There are a few things you need to be aware of before hiring a credit repair attorney. Keep in mind that they use the exact same laws pertaining to debt that you would have to use.
The laws for removing negative items from a credit report don’t change, regardless of who is trying to fix the report. Don’t make the mistake of assuming that a credit repair attorney is going to represent you in case you’re sued or end up with a judgement from a creditor.
The actions that the lawyer take will always be outlined in the contract that you’ll sign. If there’s no upfront contract to sign, the company probably isn’t reputable. If you’re on the fence as to whether or not to hire an attorney, consider your time and headache versus paying for the service.
In some cases, such as help with identity theft, unfair wage garnishment or illegal debt collection bank account seizure, then it’s beneficial to hire a credit repair attorney. Otherwise, you’re better off repairing your credit yourself.
5. Filing Bankruptcy
Sometimes, your life can take such a turn and your credit can get into dire straits. You might have creditors call you all hours of the day and night and be on the receiving end of collection letters, threats of lawsuit or wage garnishment.
When you’re struggling to pay your bills and it appears you might face eviction or the loss of your home, bankruptcy can be an option to help you start your life again.
It is my opinion that personal bankruptcy is a pretty serious stuff and an option you should consider only as a last resort.
You want to get a good bankruptcy attorney who will assess your situation with you and give you the best advice on the course of action to follow. There are different type of bankruptcies. Your attorney should be able to help you decide on which one to go with.
Be sure you know what exactly you stand to gain, and all that you stand to lose when you file for bankruptcy.
For one, bankruptcy does stay on your credit report for years: 7 years for completed Chapter 13 bankruptcies and 10 years for Chapter 7. And if you have debts that are really choking you financially such as student loan payments, a bankruptcy does not erase that debt.
If you owe the IRS back taxes, a bankruptcy doesn’t do away with that, either.
The good news, however, is that after you filed bankruptcy, you could get some breathing space from the stress of the financial pressure, and the creditors will stop haranguing you.
You also get to start fresh rebuilding your credit. While some people look at bankruptcy as being a terrible thing, there are many creditors who look at it and will give you credit to start fresh. The reason they do this is because they see that you can afford to pay them back since most of your debt was discharged.