How to Overcome Bad Credit

Bad credit can cause major complications in your life for many years. Negative marks such as late payments can remain on your credit report for seven full years, and a Chapter 7 bankruptcy will follow you for 10 years. While the effect of your bad credit history will diminish over time, as long as these derogatory marks stay on your report you may have difficulty obtaining credit, be it a credit card, a car loan or a home mortgage. Overcoming your bad credit history typically involves taking a series of proactive steps.

Instructions

1

Correct credit report mistakes that are making your credit worse. While you cannot remove valid information from your credit history, you do have the right to correct mistakes. For example, if you file Chapter 7 bankruptcy, you should confirm that all accounts with your former creditors are listed as being included in your bankruptcy and show a zero balance owed.

2

Compare all three of your credit reports. There are three main credit-reporting agencies, Experian, TransUnion and Equifax. Often, the information in your report will vary from agency to agency, and correcting misinformation at one agency does not necessarily lead to correct information at all three.

3

Do whatever you can to improve your credit in the short term. If you are in a position to, pay off any past-due accounts and attempt to settle any accounts that are in collection. Pay down debt if you can and keep all your existing accounts current.

4

Get new credit if you don't have any. One of the best ways to overcome bad credit is to improve your credit score. While this takes time, obtaining new credit is one of the necessary steps to show lenders that you can be responsible with new credit. If you are not in a position to obtain a loan or an unsecured credit card, talk to a bank or credit union about a secured credit card, in which you make a deposit as collateral for your new credit line.

5

Explain your situation. A bad credit history may prevent you from getting certain jobs. If you are upfront about your situation and inform your potential employers before they find out on their own, you may be able to neutralize the negative effects of your bad credit. For example, if you lost your last job due to medical reasons and have not yet been able to pay off your debts, you may be able to put a human side to your bad credit and overcome any hesitancy on the part of the hiring manager. You can also have this information included in your credit report.

6

Find a co-signer. If you have someone close to you who is willing to accept financial risk, you can have that person act as a co-signer on any loans that you obtain. A co-signer is legally responsible for the debt you incur, even if you willingly choose to avoid payment, so many lenders will accept a co-signer with good credit.

7

Offer more money upfront. Most lenders will require a down payment from all borrowers, let alone those with bad credit. If you are willing and able to put up a larger down payment, whether you are taking out a car loan or a home mortgage, you may find lenders are more willing to deal with you, even if you have bad credit. Since not all lenders are the same, your mileage may vary, but generally the larger the down payment, the more likely you will be able to overcome your bad credit.