Bad Credit is Not the End: How to Rebuild Slowly From The Bottom Up

Monday, June 28, 2010

For most people, suddenly finding themselves faced by bad credit seems like a life sentence. While it is a blow to lose your financial creditworthiness, it is not impossible to rebuild it.

Stabilize Your Finances

The first step is to stabilize your finances. Unless you have a stable income, there is no way to prove financial stability to existing and/or potential creditors. If you try to start rebuilding your credit before you are ready financially, you may risk doing even more harm to your already damaged credit profile.


Rebuilding credit is all about proving financial stability and dependability to creditors. The more stable your cash flow and payments, the less the risk to the lending company, and the easier it becomes to negotiate credit, as well as better interest rates.


Unless you have a solid income, or only need a small amount of credit to start, you may want to guard against premature credit applications. You are likely to be faced with unusually high interest rates, which might make repayments difficult again. There are some companies that thrive on lending money to bad debtors - at ridiculous rates (due to the risk).

Be Smart with Your Existing/Open Credit Card


If you still have access to a credit card, pay it on time, and use it as sparingly as you have to. If you have been using the company's services for a while, you could negotiate better rates, and even a lower minimum monthly payment. Being able to hang on to an existing credit card is the easiest way to start repairing your bad credit history.

Check Out Other Rebuilding Options

If you do not have access to a credit card any more, there are other options. One option is to consider  personal loans for bad credit candidates. You could borrow small amounts at a time, and repay it as fast as possible. Another option is the use of secured credit cards - underwritten by a major corporation, but only good for as much as your deposit. This way, the risk for the lender is minimized, while you still have access to credit, and can prove stability.


Review Your Credit Report

Check you credit reports from time to time. If you draw your credit reports from all three the major bureaus (Experian, Equifax, and TransUnion), chances are that some of the information will be different on each of them. If you find any incorrect entries, make a dispute to the credit agency - the company has to verify it, or delete it from your profile. This way you can ensure that all you regular monthly payments are noted, and it will add to your credit score.


At the end of the day, you will have to accept that your bad credit score did not happen overnight and repairing it will take some time. However, as soon as you are financially secure, you should start working on it systematically. Start off small, using your existing credit card, or a secured credit card, or personal loans for bad credit. Over time, you will be allowed access to larger and larger amounts of credit, at more and more reasonable rates. At the end of the day, it comes back to stability, risk and trust.


Author’s Bio:

Stephen Cline has a dual bachelor's degree of Business Administration and Finance and has worked for numerous financial corporations in the past 4 years. Taking some time off from the corporate world, he is currently getting his MBA at the University of California, Berkeley. You can visit his website at and follow him on  Twitter

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