Bad credit happens to good people. Unforeseen circumstances such as a job loss or sudden illness of your own or someone in your family can result in bills stacking up and your credit score taking a hit you think is impossible to recover from.
And while missed payments and charge-offs (accounts that are closed, but debt is still owed) can remain on your credit file for years, there are ways you can work towards a healthier financial future.
Secured credit cards
This is not only a good choice for those seeking to rebuild credit, but for young people trying to build initial credit. A quick internet search will yield countless options here, so do your research before making a decision. No matter who you go with, the concept is the same: you provide a cash deposit and that amount becomes the amount of credit you secure. You have access to these funds immediately and use the credit card just like you would any other. The issuing bank doesn’t take a risk because your deposit is their protection.
Many times, you can obtain a secured credit card without a credit check and no additional fees. Many familiar financial companies, such as Visa, Capital One and others offer secured cards. These can be good options because once you’ve shown them that you are able to make payments on time, they are often willing to move you to an unsecured credit card. Each step you take is leading you back up the credit score ladder!
Credit builder loan
Credit unions are always a great place to start looking for financial help. They are typically smaller than the larger banks we all know, and are seen as more of a community business that offers a more personalized relationship with its customers. They typically charge lower fees and interest and offer a higher rate on savings accounts.
With a credit builder loan, the funds you borrow remain in a savings account and you make payments on that loan for a certain number of months. Each month, as you make your payment on time, the bank reports your good work to the credit agencies. This positive repayment history will begin to move the needle (albeit slowly) in the right direction. At the end of the loan’s term, the money you borrowed will be available to you. Not only are you seen by the credit bureaus as someone who is now trying to do the right thing, but you’re also becoming a valued customer of that credit union. In the years to come, there’s a good chance you can work with them on securing a car loan or even a mortgage.
Rebuilding credit can be tough, but it can definitely be accomplished through hard work and patience. The most important thing to keep in mind while you’re working to rebuild your credit is to create the habits that will keep you out of this landmine in the future. When you do start seeing your score rise, take care to stay within a comfortable budget. Don’t overextend yourself. Make all payments on time. By following these rules, your financial health will improve and you’ll be looking at a happier and less stressful future.