Having bad credit can truly affect your life. With a bad credit rating, your chances of being able to own your own home, finance a car purchase or get a student loan are drastically reduced. Bad credit can result from several factors; failure to repay a previous loan, failure to pay credit card debt, or defaulting (late payment) on a loan or credit card. To keep your credit in good standing and avoid incurring a mark on your credit score, ensure that your bills, loans, mortgage payments and credit card bills are paid promptly. Once you’ve fallen into bad credit territory, there are a few options for rebuilding credit to a range where lenders will trust your likelihood of repaying a loan they give you.
Credit counseling is usually used in situations where the debtor (the person in debt) needs help negotiating lower payments with credit card companies and other lenders. Credit counselors will help a debtor create a debt management plan that includes bad credit refinancing, consolidation loans and other debt management strategies, including financial planning education to ensure the debtor has the tools and information they need to stay financially stable.
Consolidation loans are in effect loans taken out to repay a number of unconnected loans. Debt consolidators will give an unsecured loan, meaning there is no collateral, such as the debtor’s home, to cover the loan if it is not repaid. Once the consolidation loan has paid off the individual loans, the debtor owes the loan consolidator for the amount of the loan.
Other ways to repair bad credit include getting a secured credit card and making regular payments. A secured credit card is based on an agreement between you and a credit provider, like MasterCard for instance, which is based on your pre-payment of a predetermined amount (usually $500 or less) which allows you to use the card as you normally would, and ensures that the lender will be paid because they have your security deposit. Find a secured credit card provider that reports regularly to credit companies so that your score is credited for prompt repayment.