It seems that if you screw yourself up and end up with bad credit, there’s seems to be no easy solution to fix it. The only people who will loan you money will charge horribly inflated rates. Even if you pay the loan back on time, you get a bad credit rating for getting such a high rate (this happened to me once). Also, excessive inquiries into your credit is bad for your credit! So, other than not getting yourself into a big credit mess in the first place, how do you repair a bad credit rating?
Most advice I’ve seen says that the best thing you can do is pay your bills on time and wait it out. Except for bankruptcies, nothing lasts more than seven years on your credit report.
I think department stores will often give charge cards to almost anyone. Since you have to pay them off every month anyway, the terms don’t vary much with your credit history. If there’s a place you shop at a lot anyway, you could try getting a charge account there and using it responsibly to build up a good history of making payments on time.
For some more information from Experian (one of the big three credit history firms), see this site.
I’m currently fixing my credit. I expect it to take about 2 years to be in good enough shape to qualify for a good home loan.
My problem was very low income due to job loss, disability and temp work for a couple of years, so for a long time I only paid the pink bills. I’ve been in the black for just over a year now, and paid off all my legal debt, but I just financed a car and the best rate I could get is 15% due to the earlier credit problems I had.
Financing the car, which I can afford to pay off in two years instead of 5 is part of my plan for rebuilding, along with paying all of my other bills on time. I have only 1 credit card now, which I pay off every month.
There is some excellent advice at http://www.fool.com/credit/credit.htm if you want a place to get started.
Careful, slackergirl; while paying off your car loan early and not carrying a credit card balance may be good for your personal finances, they make you a less attractive customer for lenders. If a lender looks at your credit record and sees that you avoid paying interest fees (thus getting their services for free), they are more likely to lend money to people who pay interest for the full term of the loan, and only pay the monthly minimum on credit cards (they love that!).
That depends on what she wants, Fear. Since her stated goal is to qualify for a home loan, she’s probably taking the right tack. If she wanted to qualify for credit cards, it might be better to carry a balance (but still make all payments on time).
I don’t think paying off the car loan early is a problem for the lenders she’s interested in. You’re getting the bank’s services for “free” when you do this with a credit card because of the grace period. But for a regular consumer loan, you’re paying full interest for the services you receive. If they get their money back in two years instead of five, they get less total interest, but it’s that much sooner that they can lend the same money out to someone else.
To clarify - I’m looking for a home loan in 2-3 years, which I’m hoping to get through my company’s credit union, assuming that their interest rates are still lower than average, as they are now.
Since the problem with my credit history is not paying credit cards, utilities, and one signature loan on time, they are concerned with my ability to pay on time, not how much interest I carry.
My income is high enough that I can live on about 55% of my take home pay (with A LOT of effort) if I only pay the minimum on my car loan. I save some of the leftover and pay down my car loan and also a loan from my dad with the rest. This means I have a professional job, but still live like I did when I was on disability. Nicer furniture and a bigger apartment would be pretty cool, and technically affordable, but I’d rather have the house in a couple of years.
As far as credit cards are concerned, I don’t want or need any more at this point, and since I have enough cash to handle emergencies, I won’t need them again any time soon.