Bad Credit Boot Camp

An OppLoans Guide to Understanding Your Credit, Credit Report, and Credit Score.


Chapter 3. How to Come Back From Bad Credit

While it certainly can be difficult for people with no credit to build their scores, it can be even harder for someone with bad credit to come back into the credit bureaus’ good graces. Not everyone gets the opportunity to begin their credit history as an authorized user on a credit account with an outstanding credit score. Even the most responsible credit card users can slip up and forget to make a payment once or twice, or get their identity stolen by some unscrupulous character.

Raising your credit score isn’t easy, but it’s probably not as difficult as you think it is. Most people don’t need to win the lottery in order to pay off their debts and cover their living expenses. Think of credit-building like a video game: you need to figure out the rules in order to get to the next level. If any of the options we mentioned in the previous section, like finding a co-signer, making on-time student loan payments or becoming an authorized user on someone else’s account are available to you, do those things first. They will help you slowly recover your credit, and once you’ve exhausted all those options, there are still more ways for you to help dig yourself out of a bad credit grave.

Lucy Luzarony Josiah Nelson – 

“Recovering from bad credit is often very time consuming and tricky, but not as scary as many people believe. The first thing to do is look over all of your reports very thoroughly for inaccuracies (good place to link to the first story). After the inaccuracies are settled, it’s time to clean up. The process will vary immensely depending on your credit profile, but I’ll mention a few of the most common situations I’ve seen.

If you have unpaid collections on your report or high debt, the first thing you should do is pay it down. With collections accounts, you can almost always negotiate settlements with the creditor and in some cases, you can make a settlement offer and include a request to delete the item from your report after payment as a condition of the settlement. With credit cards, the first step is always to get utilization below 20%. This will usually provide an immediate boost to your credit score. Start by paying high interest debt first.

Utilization is the percentage of your available credit which you are using. To calculate this, simply add the credit limit of each of your cards and add the balances on each of the cards. The ratio of your balances to your limits is your overall utilization. Good is considered 20-30%, while optimal is 2-7%. Keeping your utilization down is almost essential, as it accounts for 35% of your credit score. Whether your total limit is $500 or $50,000, utilization affects your credit score with the same weight. After your report is as clean as possible, start applying for 1-2 credit cards if you don’t already have them, or take out a credit builder loan to dilute your negative history…”

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