It’s such a negative term but lately it’s becoming more and more common. Each individual has their own circumstances and it doesn’t necessarily have to be because of poor money management skills.
With the recent economic downfall we have experienced the last several years, more and more Americans are facing this problem.
Prepare for the Worst
I have a friend who I thought was the most financially stable person known to man. She made close to $55,000 a year. She had a couple of checking accounts, several savings accounts (with at least $500 or more). She also had several investment accounts and her debt was minimal. She only had a couple of credit cards that she would use just to build her credit and pay them at the end of the month. She was pretty much living a comfortable lifestyle.
In 2008, things took a turn for the worst and she was laid off due to the recession. She managed to continue to take care of herself using money she had in savings. She continued to look for work but that yielded no results.
Eventually she turned to credit cards to take care of basic necessities. Everything pretty much started going in a downward spiral. She could keep up the payments on her cards for a brief period of time but with the increasingly high interest rates, she eventually couldn't keep up. Now she has “Bad Credit” and she was just a victim of circumstance. I shared this story to make this point, in life things happen and sometimes it is out of our control.
How to Repair Bad Credit
For every problem there is always a solution. There are ways to rebuild your credit.
A great start to rebuilding your credit is to obtain a copy of your credit report so that you will be aware of your current credit score and any negative activity. One common misconception is that having a credit card will make your credit bad. It doesn’t hurt to use one credit card because it will actually help your credit (you have to have credit to have a credit score/report). The most important thing to keep in mind is to make sure that you pay the full balance each month and make payments ON TIME.
Avoid bankruptcy at all cost! Some people have extreme circumstances and bankruptcy is their last option; that is exactly what you want it to be: “your last option”. Bankruptcy is just really messy and it takes more time and effort to bounce back from it.
Another way to rebuild your credit is to not apply for credit if it can be helped. Every time you apply for credit it is reported to the credit bureau which will affect you negatively.
The one good thing about credit is that it can be rebuilt. You should never give up on your credit because if you do, it can have a negative impact on your life.
Credit Rebuilding Pointers
- Obtain a credit report (you are allowed one free one each year)
- Use a credit card (as long as you make payments on time, this will help)
- Avoid bankruptcy (let this be your last option)
- Avoid consistently applying for credit
Readers, what other tips do you have to rebuild your credit score?