Using Free Services and Responsible Spending

When you have bad credit it can be very hard to qualify for the some of the most basic necessities, such as a home loan, a car loan, or even a cell phone.  It may seem impossible to get your credit rating up, but with a little planning and discipline you can improve your credit score much faster and easier than you may think.  

Where to Start?

In order to improve you credit score you need to know where you are starting.  Everyone is entitled to a FREE copy of your credit report each year, from each of the three major providers. The three main credit agencies are Equifax, Experian and Trans Union.  Aside from the three you can request from those agencies there are a number of websites offering credit services for a variety of prices.  You will see these advertised on TV and many different corners of the web, many of them offer you a free report up front, but require a credit card to sign up.  If you come across one of these sites, just leave. There are plenty of free, easy ways to get a copy of your credit report, if you are having trouble figuring it out on your own, you can ask your bank for assistance, or to point you towards a reputable website that won't sneak any charges on to your debit card.

The one I use and would recommend for the average person is Credit Karma. They offer free credit score info, as well as showing you some details about any negative entries on your credit report. It is a good idea to check up on this at least once a month for a number of reasons, first it will help you begin to understand what effect certain actions have on your credit score, both positive and negative.  Second, you will be far more likely to notice any mistakes if you are familiar with your reports and what they mean.  Third, you will be able to stay on top of any new items that have been added to your report, which may require attention.

Make a Budget

And Learn to Stick to it

A budget is a big part of personal finance. If this is something you struggle to put together yourself, consider using some of the online tools to help you. You can just do a Google search for "personal budget planner" and find a number of options to choose from, one that I like is Budget Simple, they have a clean interface and a free account option with all you need to put together a personal budget. This will help you see what you're spending each month, what you might be able to eliminate, and what you have leftover once the bills are paid, and the mouths are fed. 

Use Your Credit Card

How to Improve Credit Scores

Show Them What They Want to See

This is one of the credit paradoxes that has always seemed the silliest to me, and that is, you need credit to get credit.  The easiest way to do this is with responsible spending, that is to say, living within your budget, and spending smart. Creditors like to see that you pay your bills on time, and in full, so to do that, and to make it as "public" as possible to the credit agencies, you will likely want to think about getting at least one credit card.  Some people recommend more than one, personally I think just having one card keeps things simpler, safer, and easier to manage.  

Your goal for your first credit card is to find one that regularly reports to all three credit agencies.  You may want to talk to your bank or credit union about what cards they offer, and what cards you may qualify for.  You don't want to apply for too many credit cards, as applications often lead to a small decline in credit scores up front.  If the credit agencies see a number of these applications in a short period of time, it makes you look desperate for credit, and can often cost you quite a few points on your credit score for doing nothing more than apply for a card. 

There are a number of different options such as secured or unsecured credit cards, cards with or without yearly fees, and the APR's vary dramatically. Do some research and figure out what kind of credit card works best for you as the answer is different for everyone.  

Use Your Card

Put Your Credit Card to Work

Just having the credit card won't change your credit at all, how you use it will.

Now, this is where people tend to have issues.  Now that you have the card, how do you use it without building up debt, and to make an improvement on your credit.  You can't use it for everything or you will quickly hit your credit limit, and likely end up falling behind on the bill.  Consider using your credit card for monthly bills, things you know you have to pay, and pay regularly.  If you are already set up for automatic payments, you can switch some of them to the credit card, or find another constant alternative that you could put on your card.  It could be your daily cup of coffee, or your lunches during the work week. If you have some extra spending money in your budget you could use your card to pay for your hobby, home improvements, fixing up your car, or whatever else is calling for attention that month. Whatever it is you choose, make sure you are still setting aside the money so that you can pay off the balance each month. This will show that you are responsibly using the credit offered to you, and get you on the way to a higher credit limit, and more opportunity to use it to your advantage. 

As you make this a habit, you will begin to see your credit score improving.  Once it gets up to the 700 range, and you get accustomed to responsible spending and budgeting, it may be a good time to think about getting a car loan, which if you continue to be responsible with your spending, will help drive your credit score even higher.