Your credit score has a huge impact on your quality of life as an adult in the United States. Everything from your mortgage rates, ability to get a loan; and even getting a job are related to your credit score. Fixing bad credit may seem daunting at first, but there is hope if you are willing to make some sacrifices and practice some discipline.
There are some common misconceptions about fixing bad credit; or people have listened to misinformed advice for so long it has stuck into their brains! One myth that perseveres is that you must use credit to build credit; as in you should carry a balance from month to month. This is not true; you do not have to carry any balance at all on your credit card. Carrying balances is one way to pay a lot more than you should in interest! If you can, try to pay your balance off every month; but if you can't, make sure you at least make the minimum payment.
Payment history is a critical part of your credit score, just paying your bills on time can save you a world of headaches. This leads to card utilization, which is another composite part of your credit score. You should strive to never utilize more than 30% of your credit limit total; for example, no more than 300 dollars on a card with a 1,000 dollar limit. Keeping a very high balance on your card will definitely hurt your score; but you can improve your score greatly by simply paying it down. If you have multiple lines of credit open, pay off the smallest card you can first for a psychological boost, then tackle the one with the highest interest rate. Continue to make the minimum payment on your other lines of credit while you pay as much as you can on your highest interest card. Applying for more credit with multiple credit card companies in a short period of time can also greatly affect your score; only apply for one card at a time.
If you cannot even apply for credit anymore as your score has dropped so low, there is still hope. Even if you declared bankruptcy or have multiple charge offs on your account, you can gradually fix your credit. Fixing bad credit when it has reached the bottom may take several years, but it is certainly possible. Don't bother applying for credit cards or loans if you know your credit is extremely poor; it won't help you out. Save up some money and open a CD with a bank, then take out a loan against that CD.
For example, if you open a 1,000 dollar CD, you can be loaned 1,000 dollars as the bank will simply seize your CD if you fail to pay. The rates are usually low, and your payments are being reported to the credit bureaus to help boost your credit. Remember, there is always hope no matter what your credit situation looks like!