So, you‘ve got bad credit. Maybe you missed a few payments, maxed out your cards, or even had accounts sent to collections. Whatever the reason, that low credit score is holding you back – from getting approved for loans, renting an apartment, even landing your dream job.But here‘s the thing: You CAN fix bad credit. It takes some work, but with the right strategies and mindset, you can rebuild your credit and open up a world of financial possibilities.At Delancey Street, we specialize in helping people just like you take control of their financial lives. As a business debt relief company, we’ve seen it all – and we know what works when it comes to repairing credit.So let’s dive in. Here are our top 10 personal finance tips for fixing bad credit in 2023:
1. Face Your Credit Reality
The first step to fixing bad credit? Get real about where you stand. It‘s time to rip off the band-aid and check your credit reports. You‘re entitled to a free report from each of the three major bureaus (Equifax, Experian, TransUnion) every year.Go through each report line by line. Look for errors, outdated info, anything that seems off. If you spot a mistake, dispute it with the bureau. Fixing errors can give your score a quick boost.Seeing your credit laid bare can be tough. You might feel embarrassed, even ashamed. But remember: Your credit score is NOT a reflection of your worth as a person. It‘s just a number – one you have the power to change.
-2. Create a Budget
Here’s the hard truth: You can’t fix your credit if you keep overspending. That‘s where a budget comes in.Start by listing your monthly income and ALL your expenses – rent, groceries, bills, debt payments, the works. Then, look for areas to cut back. Maybe you ditch the premium cable package or cook at home more often.The goal? Make sure you have enough income to cover your needs AND pay down debt. Sticking to a budget keeps you accountable and prevents more debt from piling up.
3. Negotiate with Creditors
If you‘re drowning in debt, don’t be afraid to reach out to your creditors. Many lenders are willing to work out a payment plan, lower your interest rate, or even settle for less than you owe.The key is to be proactive. Don‘t wait until you’ve missed payments to start the conversation. Call as soon as you know you‘re in over your head. Explain your situation and ask what options are available.Negotiating with creditors can be intimidating, but it’s often the first step to getting your debt – and your credit – under control. If you need backup, consider working with a debt relief company that can advocate on your behalf.
4. Pay Down Debt Strategically
Not all debt is created equal. When working to pay off balances and boost your credit, be strategic about which debts you tackle first.Generally, it‘s best to focus on accounts that are:
- Delinquent or in collections
- Close to the credit limit (high utilization)
- Have the highest interest rates
Bringing delinquent accounts current and lowering your credit utilization can net you the biggest credit score gains. Knocking out high-interest debt saves you money on interest over time.Two popular methods for paying down debt are the debt snowball and debt avalanche. With the debt snowball, you pay off your smallest debts first (while paying the minimums on the rest). The debt avalanche has you focus on the highest-interest debts first. There‘s no “right” way – pick the method that motivates you most.
-5. Make Payments on Time
Your payment history is the single biggest factor in your credit score. Late payments can tank your score and stay on your credit report for up to seven years. Yikes.So, Job #1 for rebuilding credit? Pay every bill on time, period. Set up autopay so you never miss a due date. If you struggle to remember, set reminders or use a budgeting app that alerts you when bills are coming up.If you‘re behind on payments, bring them current as soon as possible. The longer an account is delinquent, the worse it is for your score. Reach out to your creditors and get on a payment plan if needed.Remember, the goal is progress, not perfection. Every on-time payment is a step in the right direction.
6. Keep Old Accounts Open
Here’s a credit tip that might seem counterintuitive: Don‘t close old credit card accounts, even if you don’t use them anymore.Part of your credit score is determined by the length of your credit history and your credit utilization (how much of your available credit you’re using). When you close an account, you lose that available credit and your utilization goes up – which can ding your score.Instead, keep old accounts open and charge a small amount periodically – say, a pack of gum or a Netflix subscription – and pay it off right away. This keeps the account active without racking up debt.The exception? If an old account has a high annual fee and you’re not using the perks, it might make sense to close it and take the temporary credit hit.
7. Become an Authorized User
If you have a trusted family member or friend with good credit, ask to be added as an authorized user on one of their credit card accounts.As an authorized user, the account‘s payment history and credit limit get reported on YOUR credit report – without you being legally responsible for the debt. If the primary cardholder uses the card responsibly, it can help boost your score.Of course, this only works if you trust the person to pay the bill on time. If they miss payments or max out the card, it could hurt your credit instead of helping.
8. Get a Secured Credit Card
When you have bad credit, qualifying for a traditional credit card can be tough. That‘s where secured credit cards come in.With a secured card, you put down a cash deposit (usually $200-$500) that becomes your credit limit. Because the deposit limits the issuer’s risk, it’s easier to get approved – even with poor credit.Use the card for small purchases and pay the balance in full each month. The issuer reports your payments to the credit bureaus, helping you build a positive payment history. After 6-12 months of responsible use, you may be able to upgrade to an unsecured card and get your deposit back.Just make sure to choose a card that reports to all three credit bureaus. And watch out for secured cards with high fees or interest rates – the goal is to build credit, not get deeper in debt.
9. Consider a Credit-Builder Loan
Another option for rebuilding credit is a credit-builder loan. These loans are designed specifically to help people with bad credit or no credit improve their scores.Here’s how it works: The lender deposits a small amount (usually $300-$1,000) into a locked savings account. You make monthly payments to the lender, which reports your payments to the credit bureaus. Once you’ve paid off the loan, you get access to the money in the savings account.Credit-builder loans don’t require a credit check, so they’re easy to qualify for. And because the loan amount is held in savings, the lender takes on very little risk. Just make sure you can afford the monthly payments before signing up.
-10. Be Patient and Persistent
Rebuilding credit takes time. There‘s no quick fix or magic bullet. Slow and steady is the name of the game.Expect it to take at least 6-12 months of consistent, on-time payments and responsible credit use to see significant improvement in your score. For some, it may take 2-3 years to get back to a “good” credit range.The key is to stay focused on your goal and not get discouraged. Celebrate the small wins along the way – like the first time you pay off a credit card balance or see your score go up by a few points. Those milestones mean your hard work is paying off.And if you slip up and miss a payment or go over your credit limit? Don’t beat yourself up. Get back on track as soon as possible and keep moving forward. Progress, not perfection, remember?