The Top 5 Ways to Eliminate Bad Credit

Bad credit can cause you a lot of financial headaches. It can prevent you from getting approved for a loan, whether it’s a home loan, car loan, or personal loan. Sometimes it can even prevent you from opening a bank account. The only thing that can be done in this situation is to work to eliminate your bad credit so that you can get your good credit restored. This is not something that can be done overnight. It requires a long-term plan where you will gradually work to restore your good credit and prove to the three major credit bureaus that you can be trusted with debt once again.

Below are the top 5 ways to eliminate bad credit. Let this be a “how to eliminate bad credit guide” for you.

1) Get a Secured Credit Card

A secured credit card is specifically designed for people with bad credit. The issuer basically forces you to put up collateral first before you’re issued the credit card. The collateral will be equal to the credit limit on the card. For instance, if you put up $400 in collateral, then your credit card will have a $400 limit. Just be sure to make your monthly payments on time for 12 months. If you can do so, then it will help boost your credit score.

2) Pay Your Overdue Bills

If you have any past bills that you haven’t paid yet, now is the time to pay them. The sooner you pay off all your past debts, the sooner you can eliminate your bad credit. This is better than filing for bankruptcy, even if you need to make small payments on your debts. As your debt balance continues to shrink, your credit score will increase slowly.

3) Consolidate Debt

Debt consolidation is a good tactic for people who have multiple debts with many different creditors and lending institutions. When you apply for a debt consolidation loan, this money will pay off all your other creditors and lenders. That way, you will only need to pay one lender every month and deal with one interest rate. This will make it easier for you to pay your debt while incurring less interest at the same time.

4) Look for Errors on Your Credit Report

There are some cases where a bad credit report might not even be your fault. Credit reports tend to have errors all the time. These could be errors where the report was not updated to reflect the recent payments that you made to creditors. After all, it is up to the creditors to report your payments to the three credit bureaus. If they fail to do that, then your credit report will still be in bad shape.

For this reason, you need to request a copy of your credit report from these credit bureaus, which are TransUnion, Equifax, and Experian. If you live in the United States, then you are entitled to one free credit report every year from each of these credit bureaus.

Once you get the report, check to see if it accurately reflects your current financial situation. If there are errors or out of date information, you’ll need to contact that credit bureau and give them the updated information. It may take weeks or months but eventually, the update will reflect on your report.

5) Add More Unused Credit

There is one trick you can do to make your credit utilization ratio go down. For instance, if you have $10,000 in available credit and $5,000 borrowed, your credit score will be affected by this. However, if you request to have another $10,000 added to your existing available credit, that means you will have $20,000 in available credit. This lowers the overall credit utilization ratio because it makes it look like you haven’t borrowed as much credit. This will be good news for your credit report.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes