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What Should I do if I Have a Poor Credit History?

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  • Written By: Michael Pollick
  • Edited By: Lindsay D.
  • Last Modified Date: 31 March 2018
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It is an inescapable fact of life that most of us will someday be evaluated by our credit history. This tasteless, odorless documentation of our spending and repayment habits, held in secrecy by three reporting agencies, can literally make or break us financially. Starting with the first store-issued charge card or student loan application, a credit history keeps an unblinking eye on an individual's timely payments, slow payments or non-payments. Failure to fulfill a credit obligation, no matter what the financial or personal circumstances, can lead to a very negative credit rating. This information remains active for many years, which means a closed store account from six years ago can adversely affect a car loan application submitted yesterday.

So what can be done about a poor credit history? There is good news and bad news. Because credit histories reflect your own spending and repayment habit, you must live with the consequences of your actions. Fortunately, negative credit history information does not remain active forever and a significant number of creditors are willing to work with those who have low credit ratings. You may have to accept higher interest rates or more stringent repayment terms, but your poor credit history shouldn't stop you from making some major purchases, such as a car for transportation.

One option for overcoming a poor credit history may depend on the kindness of friends or relatives. The credit reporting agencies do not investigate the details of a debt; they only document what a creditor reports. Once that debt has been repaid satisfactorily, the original negative information may be amended accordingly. If you can find a financially solvent friend or relative willing to loan you enough money to repay your previous debts, then you might be able to rehabilitate your credit history. Borrowing money from close friends and relatives is not always a great idea, but they are also more likely to extend credit based on your present circumstances, not your previous history. Make sure you get all the repayment terms of this personal loan in writing and adhere to the terms faithfully.

Another option is to learn to live within your means. Forget about getting a new credit card or a high-interest car loan for a few years, which will allow some of your negative credit information to cycle out of the reporting system. Save money from your wages to make major purchases. Resist the temptation to purchase big-ticket items from rent-to-own establishments with easier credit arrangements. Only use cash or debit cards for everyday needs such as groceries or gas. For some people, spending on credit can become very addictive. If you do happen to have a few credit cards despite your poor credit history, keep them out of sight and out of mind.

Those who want to rehabilitate their credit history without external help can seek the advice of non-profit credit card counselors. It may be possible to consolidate past debts into one affordable monthly payment. Many creditors will ask their customers to close their accounts during the time of repayment, but collection proceedings will stop. The use of a credit counseling service does appear on the credit history, but will usually cycle off after seven to ten years. Some people seeking an improvement in their credit ratings will apply for small loans from private lending institutions and repay them immediately. These lenders often charge exorbitantly high interest rates, but the timely repayment does generate a positive rating on credit reports. This may be enough to qualify for store-issued charge cards. Prompt payment on those cards, along with a substantial amount of cash savings, may be enough to qualify for a new bank-issued credit card. Restoring poor credit and a weak repayment history is never easy, but it can be done with some patience and a sense of responsibility.

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Moldova
Post 5

@Suntan12 -I heard of those loans, but I think that if you have poor credit the best thing to do is reassess what went wrong and create and envelope budget so that you can control your spending.

An envelope budget just means that you allocate a certain amount of money for your variable and fixed expenses every month so that you don’t spend impulsively.

Some people decide to continue to pay cash for things after they have gone through a budget like this. I think that you have more control over your life when you have more savings in the bank and rely on credit as a last resort.

You will also save money because if you have bad credit you will be hit with the highest interest rates possible and it makes borrowing money not feasible.

suntan12
Post 4

@Cafe41 - I have to say that if your credit report score is below a certain amount it may be difficult getting any time of loan. More banks are developing tighter lending standards and it is really become more difficult to qualify for a loan if you have spotty credit.

I do know that there are some governmental lending programs that may allow you to get government loans with less than good credit. For example, FHA loans and Fannie Mae loans often allow borrowers with credit ratings in the 600’s to obtain mortgage loans with as low as 3% down.

I personally would not buy a property without the 20% down payment because I feel that it puts you

on shaky ground with your mortgage and usually requires you to pay PMI insurance on top of your mortgage payment.

You also need a certain amount of money in savings when you buy a home because you will need to maintain the property and many times will need to repair things that you didn’t expect.

cafe41
Post 3

@Bhutan - Those are good points. I wanted to add that it is a good idea to get a credit history report at least once a year so that you can monitor your credit report for inaccuracies.

I have heard from a famous financial advisor that people that have difficulty paying their credit card bills can actually call the credit card companies and settle the debt for pennies on the dollar. He does state to make sure that you get this in writing, but he suggests that people do this themselves and not involve another party in the dispute.

He says that while settling this debt will absolve you from paying the remaining debt it does affect your credit

score history and it will take several years for you to repair your credit history. He said that you can do things like get a prepaid credit card which is secured by a funded bank account.

This way the bank has no risk because if you default on your credit card bill they can seize your bank account. He says that this is one way to repair your credit history.

Bhutan
Post 2

@Anon3285 - I know that credit reporting agencies do make mistakes from time to time and it is best to report things are on your credit history report that are not valid. It is important to remember too that many loans get bought and sold so a creditor may appear on a credit report that may seem invalid but it is actually valid.

Whatever the reason for the mishap, is it is best to aggressively deal with the credit reporting agencies and let them know that maybe your identity was compromised and someone else is using your credit. Good luck and I hope that you get things cleared up.

anon3285
Post 1

what can be done if your credit history is not valid? If a non-existent debt had been turned over to a collection agency?

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