Everyone makes mistakes. You, me, even the banker you are asking for credit. Everyone can recover from bad mistakes we have made. When it comes to credit, people can most certainly recover from mistakes they have made in the past. All it takes is to make good choices to recover from the bad choices that caused the mistake in the first place. Put another way, learn from the mistakes of the past so you don’t make them again. When you keep making good choices (making better and more responsible financial decisions), the mistakes of the past fade into memory and, given time, you no longer have bad credit but instead you have good credit again.
Four Ways to Improve Bad Credit
One way to recover from bad credit is to open a secured credit card and use it wisely. The bank you currently deal with may or may not have a secured credit card option. You may have to go online and find a bank or credit card company that offers a secured credit card that you are qualified for and can be approved for. When you have a secured credit card, you will have to put up a security deposit. An example would be you may need to provide $500 up front to get a $500 credit limit. Ensure that the credit card issuer reports the payments you make to this card to the credit reporting agencies. You are paying (security deposit) to rebuild a new credit history moving forward. The payments that you make on time (and the late ones as well) need to be reported. Don’t make late payments. You are building a positive credit history moving forward and payments made on time allow for that.
Another way to recover from bad credit is to open a small installment loan. This may be able to be done at your bank via a credit builder loan. A security deposit will be needed for this type of loan. Another option could be a retirement savings loan, where the bank not only has the loan but also the retirement savings account. This is a win-win for the bank and you get to rebuild your credit. If you consider using an online company, make sure that they report your (on-time) payments to each of the credit reporting agencies. Similar to the secured credit card payments, you want the positive activities of on-time payments to be recognized and rewarded with credit score points.
A third way to recover from bad credit is to build your assets. This is one of the 5C’s of Credit that bankers use when deciding to approve or decline a request for credit. The “Capital” C is measured and the stronger it is, the better the credit application scores. Your assets (Capital) can be in the form of a savings account with regular contributions, a savings bond, a retirement savings account with regular contributions, or other financial assets. You do not need to have a million dollars set aside for this “C” to be effective, so don’t worry. Having some is better than none.
A fourth way to recover from bad credit is to put the banker on your side. They want to approve credit applications and you want credit, so let them approve your credit request. When you have bad credit, the ease of approval for a credit application becomes more difficult. You want to offset that difficulty by making the rest of the credit application process as easy for the banker as you can make it. This means being prepared with the documentation that they need. Have it with you when are at the first meeting. Don’t have to come back and drop off the documents that you may be asked for. Know that you have less than stellar credit and ask for a credit product that would qualify for. Also, let the banker know about your need to rebuild your credit before you start the credit application. By being up front about it and being prepared, it shows that you are not trying to hide anything. When you are willing to establish a relationship with the banker and are open to accept their help and any financial products they may recommend, you are saying “I am here, and I will let you help me if you are willing to help me.” This is a win-win relationship for the both of you.
You have more control over the credit application process and credit approval than you realize. When you know what is being looked at and what is being measured in the credit application and what is needed to get approved for credit, you are able strengthen these areas. This can be done before you meet with the banker to apply for credit. When you are able to give what the banker is looking for to them, it becomes easier to get approved for the credit you want at the interest rate you deserve.