How to Dig Your Way Out Of Bad Credit

February 18, 2015

Once you’ve landed yourself in a bad credit sinkhole, you may feel there is no way to pull yourself back up to the top. However, there are ways to obtain good credit again. Follow these four simple steps to dig your way out of bad credit and back into the light of low-interest rates, incredible loan offers, and a high credit score.

Know What’s on Your Report

Before you dig yourself out, you should know how deep of a hole you are in. Order a copy of your credit report to see your score and what negative marks are against you. There are three major credit reference agencies: Experian, Equifax, and Transunion, of which the first two are used the most. This does not mean that every creditor updates them all equally. So review each report. You may find inaccurate information, such as an outstanding debt listed on one report, but shown as paid off on another.

Another reason to review your credit reports is for false information. Errors happen. There could be a debt in your name that does not truly belong to you. You could have an old judgment that you’ve forgotten about due to an address not being updated.

Create a Budget and Stick to It

Now you need to focus on paying off old debts and paying your current ones on time. The best way to this is to create a budget and stick to it. Most people get head over heels in debt because they attempt to live beyond their means – they spend more than they earn. They rack up credit card bills they can’t afford to pay. Take a look at your expenses and eliminate those that you can. You must control your spending habits. Once you’ve freed up your income, apply it towards eliminating your debts.

Cut Up Your Credit Cards

Since credit cards probably got you into this sinkhole in the first place, it’s best to cut them up. Now, you do not want to close your accounts because it’s best to have a longer credit history. Save one or two and freeze them. If an emergency truly strikes, pull a card out to defrost it. It will give you time to analyze your options. The takeaway: stop using your cards, immediately. As you pay your debts down, your credit utilization decreases. This looks favorable on your behalf because it shows you can manage having credit.

Call Your Creditors and Change Your Payment Dates

Late payments could be another reason your credit score is on the decline. So, after creating and analyzing your budget, see if you’re more so late on payments because of your due date. Contact your creditors and change it. Most are willing to accommodate. If you find yourself simply unable to make a payment, do not skip it. Contact the creditor ad make a payment arrangement.

After implementing the above four tips, you’ll find yourself with a plan to start digging your way out of bad credit.