Straight Up Financial Advice

If you have had the misfortune to be in a position where you credit rating has had to be impaired, where you have in effect become a bad credit risk for lenders you have two main options.  You can repair your bad credit rating or you can look to bad credit lenders in order to raise any funds necessary, or possibly circumstance may mean that you have to undertake both.

Bad Credit Repair

Repairing bad credit can seem like a daunting task, but it doesn’t have to be. With six simple steps, you can build a better credit score.

The first step in repairing bad credit is ordering your credit report. According to the Fair Credit Reporting Act, you’re entitled to one free report a year from each of the three consumer reporting companies. Since the companies (Equifax, Experian, and TransUnion) can provide different information, you should request a report from all three. Making the request is easy. Simply call the toll-free number (1-877-322-8228), visit the annualcreditreport.com website, or complete the Annual Credit Report Request Form and mail it in.

The second step in repairing your bad credit score is analyzing your credit reports. Make a list with three categories: past-due accounts, incorrect information, and maxed-out credit. Put each item that needs repair into the proper category.

Step three is tackling past-due accounts. Get current on bills that you’ve fallen behind on, and pay off debts that have gone to collection. Debt collectors will work with you to arrange payments and are often willing to remove bad credit reports once you’ve cleared your debt.

The fourth step is correcting false and out-of-date information. By law, you have the right to dispute any incorrect information on your credit report.

To dispute mistakes, contact the consumer reporting company. In writing, detail the information that you believe is false. State the reason you’re disputing the bad credit report, and be sure to include copies of any documentation that supports your claim. It is also helpful to include a copy of your report with the items you’re disputing highlighted. Be sure to keep a copy of your letter. You may also want to send it by certified mail so that you can document its receipt.

The Federal Trade Commission suggests that you also inform the creditor when you dispute an item. The creditor must include a notice of your dispute if it reports that item to a consumer reporting company. If the disputed item is found to be inaccurate, the creditor will be unable to report it in the future.

Consumer reporting companies must, by law, investigate any dispute within 30 days unless the dispute is deemed frivolous. They’ll send the results of their investigation to you in writing, along with a copy of your credit report should an item be removed or changed.

Once you have cleared up any false or inaccurate information, it’s time to clear your report of information that is out-of-date. Under the Fair Credit Reporting Act, consumer reporting agencies cannot include negative information beyond a certain time limit. While this is often seven or ten years, the time can vary depending on the type of debt and the state in which you live. It’s important to verify that the disputed item is outdated. Check your state and local laws to be sure.

The fifth step is to pay off maxed-out credit. If you have credit cards that are at or over their limits, pay a little extra on them each month. Once you’ve gotten them beneath their limits, continue paying a little each month until you’ve paid them off completely.

The sixth and final step is building new credit. Apply for a secured credit card. A secured card is guaranteed by your savings account or a deposit, so you don’t have to worry about your application being denied. By using one responsibly, you will build a new, positive credit history.

You can get bad credit help from many sources, some of whom you will have to pay, some who will provide you with advice and guidance free, but in essence the above six steps are the same whomsoever you are and in whatever bad credit circumstances you find yourself.  Work through you credit issues as documented and you should experience some real benefit.

Bad Credit Loans

There are any number of bad credit lenders in the marketplace all of whom are looking for your business.  However, the nature of bad credit lending is that it is expensive, can be short term and will in almost all cases require substantial security to be provided by yourself, especially in the case of very bad credit loans.

The best advice would be to shop around, make sure that you fully understand the terms on which the lending is provided, make sure that you pledge as security only something that you can afford to be without if you get into further credit trouble, and generally make sure that you do not commit to borrowing if you are not sure that you can afford to keep up the repayments on the debt.

Remember, if you find yourself talking to bad credit lenders who appear to be of the less reputable variety then you should reconsider whether or not borrowing the money is a sensible move in the first place.  If they are the only organizations who will lend you money you are probably in a position where the best advice would be to seek proper debt management advice.  Don’t get yourself into even worse trouble.  Seek help.

Secured debt consolidation is one method a consumer can use to relieve the pressures of having many bills and not enough money each month. This new, larger loan will repay all the other debts combined. It may also have a lower interest rate than credit card or store debt. A consolidation loan may also run for a longer period of time than all the other credit debts combined, because the final total will be higher than the sum of all the debts that are being repaid. This is because the lender will be adding their interest to this new loan, even if it is a lower interest rate. The total may be more than the combination of debts because the amount will be paid over a longer period of time. However, it is possible that the person may experience a relatively low increase in overall debt due to the lower interest rate advantages. In some cases, it may amount to a wash.

The major benefit to taking out secured debt consolidation loans is that the person will be rid of all the old debts at once, and only have one bill to deal with monthly. This is easier on the budget, and since the amount of each monthly payment is less than the sum due monthly for the previous bills, the payment is easier to make. It will fit into the monthly budget better than the old total amounts did.

If a person has excellent credit, and only wants to make budgeting easier, it may be possible to obtain a non-secured debt consolidation. To obtain a debt consolidation secured loan it is important to have a good credit record also. If the person is so far behind that their credit history is negatively affected, getting any type of new loan may be very difficult. In those cases, there are other solutions.

A non-secure loan is basically a signature loan, with no collateral to back it up. This is a good faith loan, and is usually reserved for those with excellent credit. Secured debt consolidations require collateral to back it up, such as a house, or a vehicle. This helps to ensure the lender that the loan will be repaid in a timely manner. The lender likes to have collateral because if the borrower later defaults on the loan, there is something tangible that the lender can claim, collect, and sell to help pay off the debt.

If you have a lot of non-secured credit debt, it is not a good idea to move them into a new loan that requires security collateral. With non-secured loans, there is pretty much nothing the lender can do to collect in default. There is nothing to back up those loans. If a debtor moves unsecured loans into a new secured loan, there is the added risk that in default they will lose their collateral. It is not nice to lose your home or vehicle!

There are good reasons to move unsecured debt into secured debt. If you have no problem making payments but have a lot of different credit/debt accounts, and just want to simplify your life, that is a good reason to want only one payment. Getting lower interest is another good reason. Just be sure before you make a move that the long term effect will actually result in an overall savings for you, or it will not be worth doing.  It is just plain easier to take out debt consolidation for secured debt, so you should definitely consider whether you should consolidate secured debt as a matter of priority.

If you opt for a secured debt consolidation, some companies require that you not open any new accounts. That is a great idea until you get your finances and budget back under control.