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

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.