Finance
February 2, 2024
“How can I repair my credit quickly?”
You’re not alone in asking this question. According to a recent survey, more than half of Americans have been turned down for a credit card, loan, or car financing due to poor credit. To improve your financial health for the long term, you must budget well and manage your spending habits.
Fast credit repair often begins with a debt consolidation loan. Debt consolidation helps provide a fast influx of cash that you can use to pay off debts ranging from medical bills to credit card bills to student loans. But you might run into some difficulty with bad credit.
Having trouble securing a debt consolidation loan with poor credit? No worries. Here are some tips for fast credit repair.
Tips for Getting Approved With Bad Credit
As with any loan, start by shopping around. Compare lenders to see different terms and interest rates. As you look around, here are a few tips to keep in mind:
Check for Mistakes
Sometimes, it’s not your fault if you’re not approved for a loan. Lenders often run soft credit checks to see if you pre-qualify, but errors sometimes show up on credit reports and cause dips in scores. Credit companies will also sometimes incorrectly report a missed payment or credit limits that differ from the actual ones.
You can log on to AnnualCreditReport.com once a year to check the three credit bureaus for free. If you find something wrong, contact the credit company to update your credit report. It can sometimes take a few weeks to fix, so start right away.
Find Someone to Co-Sign
Frequently, lenders will allow someone with better credit to co-sign your loan. Your co-signer, who can be a close friend, family member, or trusted peer, will share your financial responsibility for loan payments. Late and missed payments will impact both your and your cosigner’s credit scores.
Get Another Job
If you’re looking for credit repair, the fastest way is to improve your debt-to-income ratio. To calculate your debt-to-income ratio, add up your monthly debt payments, and divide that sum by your gross income per month. If your debts are high, adding in additional income with a second (or third) job will make you more attractive to lenders.
Keep Old Cards Active
Your credit score is sometimes calculated with a credit utilization ratio. To determine your ratio, add up all your credit card debt and divide it by your total credit limit. If you have a credit card that you don’t use (and it’s not costing you an annual fee), keep it active to reduce your ratio. In general, lenders prefer to see ratios that are 30% or less.
Be Patient
It will take time to establish a track record of paying bills on time. But in the end, that is exactly how you’ll improve your credit score. Lenders believe that past performance is a reliable indicator of the future. Commit to new, healthier financial habits today. Don’t make additional purchases that you cannot pay off right away.
Where to Look for Debt Consolidation
People go to a few common places to search for debt consolidation loans:
Online Lenders
Today’s online lending market is filled with companies ready to process a loan quickly. However, you need to be aware of the terms before moving forward. Compare:
- Interest rates, which may reach up to 35% if you have bad credit
- Origination fees to cover the processing of the loan
- Repayment schedules and late fee policies
Credit Unions
You may consider joining a credit union near your home. These nonprofit financial agencies often offer lower rates and better terms, but you’ll need to pay a membership fee to join.
Credit unions do not pre-qualify people for loans. Instead, you must agree to a hard credit check. This kind of credit check will negatively impact your score, which may make it more difficult to shop around for other lender options.
As you search, be aware of predatory lending practices, especially if you have poor credit.
Alternatives to Debt Consolidation Loans
If a traditional debt consolidation loan won’t work out for you, there are still alternatives you can use to improve your financial situation.
Transfer Credit Card Balances
In general, you shouldn’t open new credit cards when working to improve your credit score. However, you can be smart about interest rates. If possible, move debt from a high-interest credit card to a credit card with better rates. Some cards even offer interest-free introductory periods of up to a year or more.
Try a Debt Management Plan
Credit counseling agencies offer debt management plans, which are negotiated agreements with your credit card companies. You’ll commit to a realistic payment schedule that will last three to five years, and the lenders will reduce interest rates as you pay off the debt.
Leverage Your Mortgage
If you own your own home, you can use your mortgage. Secured loans might mean risking your investment and your home, but there are other programs that can help provide the cash you need to pay off your debts and improve your credit. A sale-leaseback program allows you to sell your home at fair market value without having to move out and disrupt your life.
Take Control of Your Finances
Debt consolidation can help reduce financial stress and improve your credit score, but loans are not always accessible. To improve your financial security and pay off mounting debts, shop different lenders and programs to see if you qualify for an alternative.
Be sure to use the resources you already have, such as your mortgage with a sale-leaseback program, and take action as soon as possible to fix your financial health.
At the same time, take control of your finances and cultivate healthier money habits by:
- Implementing a monthly family budget
- Looking for ways to increase income
- Adopting a long-term saving strategy
Key Takeaways
You might be struggling with a mountain of debt right now, but with the right tools and effort, you will get back on track with better financial health for your future. Talk to a financial advisor about your options to consolidate debt and repair your credit score.
