Options for Repairing Bad Credit

[LittleMissSplendid]

I hope I'm posting in the right place, if not I apologize. I landed here courtesy of Google and this looks like the kind of supportive environment I need.

I'm researching different options for repairing bad credit (other than the obvious pay bills on time and pay off debts) and so far I've come across:

secured credit cards
credit builder loans

Can anyone think of something else I should look into? I realize these kind of options often come with high interest rates, but I'm not going to qualify for an auto loan or a regular credit card for awhile so I've been looking at alternatives. I realize I haven't provided details on my financial situation, but general info is ok since this is one of many financial topics I've been researching. I figured once I gained some background knowledge it might be easier to develop a plan to fix my finances that I can launch in the new year. The whole background story is super long anyway and would probably be better suited for a blog. Hmmm.... that would probably hold me accountable too

[disneysteve]

Secured credit cards are fine but absolutely stay away from "credit builder loans" or any other similar nonsense. You do not need to go into debt in order to improve your credit score. All you need to do is pay your bills on time and allow time to heal old issues. And never, ever pay anyone who claims to be able to repair your credit for you.

[LittleMissSplendid]

Hi thanks for replying! I have not and will not be paying one of those credit repair agencies. I've seen their ads here and there and they just seem sketchy to me. Plus they seem to have tons of consumer complaints.

I am curious about the just say no to credit builder loans though. Isn't every method of establishing or repairing credit some form of going into debt? My understanding is we earn good credit by carrying a balance and making on time payments for a year or longer and I'm not sure how you'd do that without going into debt.

[disneysteve]

My understanding is we earn good credit by carrying a balance and making on time payments for a year or longer and I'm not sure how you'd do that without going into debt.

NO! You need not and should not ever carry a balance. Use a credit card. Never charge more than 20-30% of your credit limit. And pay the bill in full and on time every month. Carrying a balance doesn't improve your credit score. It just costs you money in interest payments.

[Petunia 100]

Don't worry about the interest rate on your credit card; it doesn't matter at all. Just use your card once a month, charge a tank of gas or some groceries or whatever. When your bill arrives, pay it in full. You won't pay any interest, so the rate is irrelevant.

What does matter is the annual fee. Choose the card with the lowest annual fee you can possibly get. In time, as your credit improves, ditch the secured card with an annual fee for one which has no annual fee.

Starting your own blog is a great idea, and Saving Advice is a great place to do it. Best of luck to you with your goals.

[LittleMissSplendid]

Don't worry about the interest rate on your credit card; it doesn't matter at all. Just use your card once a month, charge a tank of gas or some groceries or whatever. When your bill arrives, pay it in full. You won't pay any interest, so the rate is irrelevant.

What does matter is the annual fee. Choose the card with the lowest annual fee you can possibly get. In time, as your credit improves, ditch the secured card with an annual fee for one which has no annual fee.

Starting your own blog is a great idea, and Saving Advice is a great place to do it. Best of luck to you with your goals.

I'm not sure I understand how I wouldn't be paying any interest. I don't currently have credit cards, but when I did the bill came and interest had already been added. I then had the choice of paying in full, which would mean only paying interest that one time, or paying over time and seeing more interest added each month. Are you referring to those credit card offers that are 0% interest for a limited time? If so I won't be qualifying for those for some time lol.

It does make sense that the interest rate is less important because its not what affects the credit score. How much of your available credit you're using, late/missed payments, and being overextended all affect the credit score. The annual fees I've seen have been outrageous, some are nearly a quarter of the small credit limit you're given! I understand why that is, but yikes. Regardless I haven't done anything yet, but I do appreciate the insights.

[Petunia 100]

I'm not sure I understand how I wouldn't be paying any interest. I don't currently have credit cards, but when I did the bill came and interest had already been added. I then had the choice of paying in full, which would mean only paying interest that one time, or paying over time and seeing more interest added each month. Are you referring to those credit card offers that are 0% interest for a limited time? If so I won't be qualifying for those for some time lol.

It does make sense that the interest rate is less important because its not what affects the credit score. How much of your available credit you're using, late/missed payments, and being overextended all affect the credit score. The annual fees I've seen have been outrageous, some are nearly a quarter of the small credit limit you're given! I understand why that is, but yikes. Regardless I haven't done anything yet, but I do appreciate the insights.

No, I am not talking about any promotional offers. Credit cards have a grace period on purchases when you do not carry a balance. If you pay your bill in full each month, there are no finance charges. When you don't pay your bill in full, there is no grace period. Interest accrues every day on every purchase.

I put everything I possibly can on credit cards in order to earn rewards. I pay no interest at all.

[LittleMissSplendid]

*smiles* I was still confused so I went digging through some of the financial websites I bookmarked and realized why this didn't make sense to me. If I had just been making purchases then yes I would have been getting a bill with no interest. However I was getting cash advances and using convenience checks as well which have interest accrue immediately in most cases. Yes I know now what a terrible situation that creates, but at the time the credit card company just sent the checks each month (3-5 at a time!) and I really thought....oh how convenient lol. I actually had to threaten to close an account to get them to stop sending them because clearly I was being irresponsible. Now that I know better it should be easier just to stick with small purchases and pay the bill in full.

[disneysteve]

*smiles* I was still confused so I went digging through some of the financial websites I bookmarked and realized why this didn't make sense to me. If I had just been making purchases then yes I would have been getting a bill with no interest. However I was getting cash advances and using convenience checks as well which have interest accrue immediately in most cases.

Now your earlier post makes sense. Yes, cash advances don't have a grace period like purchases do.

If you still don't feel you can use a credit card responsibly, my suggestion is to set up one or two of your regular monthly bills to automatically charge the card. Use it for nothing else. Don't even carry it. Just be sure to pay the bill on time and in full every single month.

Bills that we pay by credit card include our local newspaper subscription, our alarm monitoring fee, our landline and cell phone, our auto insurance, cable and internet, and more. Just don't use credit to pay any bill that charges you a "convenience" fee for doing so. Only do it if you incur no additional charge in the process.

[LittleMissSplendid]

Now your earlier post makes sense. Yes, cash advances don't have a grace period like purchases do.

If you still don't feel you can use a credit card responsibly, my suggestion is to set up one or two of your regular monthly bills to automatically charge the card. Use it for nothing else. Don't even carry it. Just be sure to pay the bill on time and in full every single month.

Bills that we pay by credit card include our local newspaper subscription, our alarm monitoring fee, our landline and cell phone, our auto insurance, cable and internet, and more. Just don't use credit to pay any bill that charges you a "convenience" fee for doing so. Only do it if you incur no additional charge in the process.

Yes I have been questioning my ability to be responsible with a credit card, even a secure one, despite everything I've learned about them. Carrying it around was exactly my problem because by the time the bill came half the charges I didn't remember and I had piles of receipts I could barely read. Seriously why do they use that cheap ink that disappears?! Charging one small bill to it each month would probably be better and then I could just pay the credit card online with my debit card. I think all of my utility bills allow free auto pay, but I'll double check.

[doingitallwrong]

I don't think you'll be able to pay your credit card with your debit card but most will allow you to set up automatic payments from your checking account. Set up your electric bill (for example) to be paid automatically by the credit card, and set up the credit card to be paid automatically (the statement balance amount, not the minimum) from your checking account. It's hands-off for you, helps rebuild your credit, and all you have to do is ensure the money is in your checking account when the credit card comes due. (If your electric bill fluctuates wildly, see about getting on a budget plan, so that you'll know every month what the bill is going to be and you won't have to worry about a super-high month.)

[LittleMissSplendid]

I don't think you'll be able to pay your credit card with your debit card but most will allow you to set up automatic payments from your checking account. Set up your electric bill (for example) to be paid automatically by the credit card, and set up the credit card to be paid automatically (the statement balance amount, not the minimum) from your checking account. It's hands-off for you, helps rebuild your credit, and all you have to do is ensure the money is in your checking account when the credit card comes due. (If your electric bill fluctuates wildly, see about getting on a budget plan, so that you'll know every month what the bill is going to be and you won't have to worry about a super-high month.)

Seriously? What kind of archaic times do we live in? I understand why you can't pay a credit card with another credit card, but a debit card is supposed to be a different thing. I even opted out of that overdraft protection and insisted I'd rather be embarrassed by declined charges in public lol. I really really don't want to set up any sort of automatic payments from my checking account. Many accounts ago I did this and ran into so many hassles trying to change the withdrawal dates because I changed jobs or the bill company would decide to move the date because of a weekend or holiday even though my pay day didn't change. This led to fees that the bank wouldn't waive and late charges from the bill company so eventually the account was closed. This may seem silly, but I've made it almost a year with this new account without any issues. Money is deposited and I use my debit card. Its just so nice and simple and in order to keep it that way I guess I'll be mailing a payment lol.

[doingitallwrong]

You can generally pay online monthly with your checking account information (routing number and account number) rather than setting up an automatic payment; I was just thinking of the easiest way to have a small charge that is paid off every month. Of course if you're only doing one small bill per month on the card, just make sure you always have at least that amount in your checking account and then it won't matter if they happen to take the payment a day or two earlier than your payday. (I know that is often easier said than done, based on your blog you seem to be in a position where that shouldn't be a problem now. You might want to check out You Need A Budget, which is based on the 'one month ahead' budgeting system, where your January income is set aside for your February expenses, February income is for March expenses, etc.)

[WillieGearhart]

Repairing your bad credit cards is very important now a days. Because having a good credit score can help you to get loan.So, if you want to repair your bad credit score then pay all your bills on time like house bills, electricity bill, phones bill, internet bills etc. You can also take the help of some websites in order to repair your credit score.

[chrischellelewis]

My Opinion

Well, you obviously heard the pay your bills on time bedtime story. I sympathize with you because I know that it gets really old really fast. My score was pretty bad (650 six months ago), now I’m holding a 735 credit score because I chose to work with a broker at [link removed by moderator]. They took a few lingering hard inquiries off my report and added some seasoned tradelines to bump up my score. I let the broker apply for some unsecured credit cards for me and I couldn’t believe that I actually got approved for $56,000. I’m going to go back for round two in a few months to see if I can get my score to take another jump.