It may seem counter-intuitive to borrow money and repair your credit but doing so may be your best option all other things considered. Bad credit scores obviously come into play when applying for loans and result in being offered higher interest rates and less appealing terms, but bad credit scores also limit many other opportunities in society. There should be no doubt that improving a bad credit score will prove beneficial.
Decide On The Type Of Loan
The first step to borrow money and repair your credit is to decide on the type of loan that works best for you. Multiple factors contribute to the right choice, ranging from how much risk you are willing to take, the interest rate you are willing to live with, the amount you need to borrow, and the repayment plans. Though readily available, most of us think twice about borrowing from family and friends. If this route is taken, agree to kind of terms, or if the amount is larger, the documents of co-signing at a bank can take care of this aspect.
Numerous other options exists, from 401(k) loans, to home equity loans or lines of credit, to credit union loans, to credit card cash advances or title loans, or you may decide to secure a personal loan from a peer to peer website. This final mention will come with the least amount of time and hassle, but it’s always important to understand the risk involved and the terms you are agreeing do. Don’t be in too big of a rush when it comes to making financial decisions.
Form A Credit Report Plan Of Attack
Along with deciding on how you are going to borrow money and repair your credit, some strategic planning will take your far. The requires a free copy of your credit report be make annually. Ordering all three reports allows a complete view since the three bureaus may differ in what’s recorded. You’ll want to look for errors to possibly report and then decide what needs repair. Directions will also be included on how to file a dispute.
Since past-due accounts comprise the largest segment of your credit score at 35%, you’ll want to tackle those first. You’ll want to pay any charged-off accounts first, which are those that are past due over 180 days. At this point, also pay off any collection accounts. Like charged-off accounts, it may be possible to settle the account for less than the balance due. Next, bring any other accounts that are slightly less past-due up to date.
Tackle High Balances
Your total debt to total credit ratio is known as your credit utilization and it counts for 30% of your credit score. Of the remaining money from your loan, use the funds to bring accounts that are close to being maxed out back to more normal balances of 10% of 30% of the total credit limit on a card. It’s best to pay down credit card balances first since they have a greater impact on a credit score, but loan balances have a similar impact as well. The money you’ve borrowed is only to go so far and remember that you need to have plans in place for paying back that money as well.
Get New Credit
Now that a good majority of the negative aspects of your credit score have been addressed, it’s time to start adding some positive ones. It’s best to only apply for one, but no more than two, major credit cards when re-establishing your history. Each application will result in an inquiry that lowers your credit score. If a major credit card isn’t in the picture, apply for one form a retail store. Another option is to get a secured credit card, which may be more useful than a retail one since it can be used in more places.
If the odds are in your favor, it is worth calling your credit cards to see if your credit limit can be raised. This will improve your credit utilization score and bump up your credit score. If you don’t currently have an installment loan to repay, considering getting one. Your credit mix accounts for only 10% of your score but is still an avenue that may be worth pursuing if it fits your situation. Another 10% is tied to how many inquiries are made to your credit history, and the final 15% is related to the types of credit being used.
Now that you have your finances under better control and are working toward improving your bad credit score with the money you’ve borrowed, it might be time to look into other tools that can help you get better at managing your finances.
What other ways to borrow money and repair your credit would you add to this list?