How to Rebuild Bad Credit and What to Do in the Meantime

Sometimes, a bad credit score can feel like it’s putting your life on hold. You’ll have trouble getting approved for auto loans, credit cards, personal loans, mortgages and more. 

However, a less-than-perfect credit score doesn’t have to be debilitating. While it’s important to learn how to rebuild bad credit, it’s also important to understand how to get financed in the meantime. 

Follow along as we share how to improve your credit rating and how to manage things during the process.

How to Rebuild Bad Credit

It’s important to realize just how much of a negative effect bad credit can have on your life, both situationally and financially. It can keep you from moving into the home of your dreams, obtaining a car in a time of need, or preventing you from financing a wedding ring. 

Financially speaking, bad credit will sky-rocket your interest rates on any loans or credit cards you do obtain. It will also limit how much you can get approved for.

Improve Your Debt-to-Income Ratio

Lower your debt-to-income ratio by cutting unnecessary expenditures out of your budget. This includes things like premium memberships, gym memberships, dining out, buying coffee shop coffee, shopping for things you don’t need, etc.

Then, use the money you save each month to start paying down debts (hospital bills, school loans, credit cards, etc.) Start by paying off the smallest debt first. Use the money that was going towards that debt plus the budget cut money to dig away at your next smallest debt and repeat the process.

Credit Cards, Payments, and Responsibility

Having credit cards can be good for your credit score. However, this only applies if you’re staying on top of the payments. Additionally, a maxed-out credit card will reflect negatively on your credit report.

Learning how to rebuild bad credit also means making sure all of your other bills are paid on time and in the correct amount. Some people find it beneficial to set up automatic payments. Never let anything go to collections.

Finally, consider applying for a consolidation loan. If you’re qualified, a consolidation loan can put all of your debts into a single loan. You’ll still owe the same amount, but the payments will be easier to manage and you’ll no longer have multiple sources of debt, which lowers your score.

Poor Credit Financing Options

Fortunately, while you’re learning how to rebuild bad credit, it doesn’t mean you have to stop living. While you should avoid taking on any more debt, there are funding options for bad credit out there, should the need arise.

For example, there are bad credit loans which are typically for less money than the average personal loan. They’re relatively easy to obtain and can be a real life-saver. However, these loans also have shorter pay-off periods. 

There are also lenders, banks, and other companies that are willing to give credit cards to people with poor credit. However, the interest rates on these credit cards will be much higher and any penalty fees more severe.

Finally, if you’re facing a financial emergency, you can take out a title loan or other type of collateral-based loan. A title loan grants financing, but only by using your car title as collateral. If you fall behind on payments, the lender can legally repossess your car.

Looking for More Advice?

If you’re looking for more information on how to rebuild bad credit or any other financial advice, be sure to check out some of our other articles before you go. We cover everything from improving your credit to learning how to create a household budget. 

Good luck!

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