It can happen to most anyone, your life takes an unpredicted turn for the worse and suddenly your once stellar credit score is less than worthy. A loss of a job, a new baby or an illness can all play a role in the success or failure of your budget. Luckily there are ways to recover and restore your good name.
Bad Credit and The Effects
Having bad credit not only hurts you financially by having to pay a higher interest rate, late fees, and a larger security deposit, but it also affects your ability to buy things and may even cost you a potential job. Bad credit happens when you make late payments or are unable make the scheduled payment for a month or so. When this happens your late history gets reported to all three of the credit reporting agencies Transunion, Experian and Equifax. Once the late payments get recorded, it lowers your score. Banks, private loan companies, credit unions and credit card companies all acquire a copy of their report. Unfortunately, once the status changes it can take several months to undo the damage.
Repairing Your Credit
The good news is that you can repair your credit. It will take some time but if you work hard, depending on the number of times you were late, you can often restore your score within 6 months. There are several ways to begin the process. One way is to go it alone and work towards bringing your bills to a current status. Then, once you have them current pay down your credit cards one by one and get them under half of the available credit limit. If your credit is severe and you have several credit cards that are already in collections, restoring your credit will take a little longer. This is because they are now transferred to an outside collection agency. Most times you can work a deal to pay a small amount back versus the full amount. However, by doing this the bad debt can remain on your report for several years.
Contact a Credit Repair Service
If you don’t have the money in your budget to repay the bad debt, you have two choices. You can file bankruptcy, which remains on your report for up to 10 years, or you can sign on with one of the many credit repair services and let them handle the negotiations. By using a credit repair service you’re instantly free from the endless collection phone calls and they also will work with you to come up with a monthly amount of repayment that works for you. There is a fee for using the service, but if your credit is in the tank and you have no other way to clean it up other than a bankruptcy, the fees are well worth it.
Establishing a Budget to Avoid a Repeat Offense
Budgeting isn’t just something people do to amuse themselves. Budgets work. In life, you have ups and downs financially. What a budget does is prevent you from falling hard. If you learn to tuck away for a rainy day, then a loss of a job or an unexpected car expense won’t take away from your bill money. Sit down and make a list of all your monthly obligations and then write down your total net income. If you have enough left over to cover gas, food and other essential supplies, then you are already well on your way to a full recovery. If when you deduct your expenses from your income you have a deficit, then you need to make some changes. You can cut back on your morning coffee, work lunches and dinners out. If that still doesn’t reverse the numbers, then reduce your cable and your cell phone to the bare minimum. The point is, to do everything you can to go from red to green quickly.