How Can I Change My Bad Credit to Good Credit

Bad Credit Lending

It can be difficult to get credit when you do not have credit history or previously had difficulty paying bills on time. Look at your credit report to determine what actions may have negatively affected your credit history. Have you taken the appropriate actions to correct any errors on your credit report?

If you are wondering how you can establish a credit record or how to re-establish credit after experiencing problems, consider the following options:

Make a Large Down Payment

Lenders may be more supportive of your loan request if you make a substantial down payment (usually 20%) for the item you wish to purchase.

Be Prepared to Pay a Higher Interest Rate

If you have little or poor credit history you may be required to pay a higher interest rate. Lenders will charge the higher rate because their risk is greater. As time passes, you may request the lender to review your account show that you have made your payments on time. The lender then may consider lowering your interest rate or improving the terms of your agreement.

Co-Signer or Co-Borrower

A co-signer or co-borrower is a person who agrees to pay back the loan if you default. This person must have a good credit history and must qualify for the loan as if he or she had been the original or primary applicant. This type of loan will be reported not only on your credit report, but also on the co-signer’s report, which could affect both parties future borrowing power. If you fail to pay the loan as agreed, both your credit rating and the co-signer’s credit rating will be affected.

Use Collateral to Strengthen Loan Request

Applicants with little or questionable credit history might want to consider pledging collateral, such as paid off vehicle, a home, rental property, stock, savings, or other security for the loan.

Apply for a Secured Credit Card

Some lenders have special credit card programs that grant the consumer a credit card with a credit limit in the amount of cash placed in a special account. Take your time and research this type of account and make sure that you are aware of the terms and conditions of this account.

Pay Bills On-time

One of the most important things you can do to rebuild your credit after filing bankruptcy is to continue to pay the creditors you still have, on time. Your payment habits will be looked at by future lenders as well as the creditors you already have, to see of you are practicing good financial behavior following your bankruptcy. This includes credit card payments, utilities, car loans, rent or mortgage payments and any debts that you reaffirmed in your bankruptcy.

Laws That Protect You

The federal government has passed several acts that are designed to protect and assist you should you find yourself in debt. Here are brief descriptions of three such laws.

Fair Credit Reporting Act:

This is a federal law that regulates the activity of the credit reporting agencies, also called the “credit bureaus.” It provides a way for you to remove inaccurate, false, or outdated information from your credit report

If you find that some of your information is incorrect, you may write to the credit bureaus, which then have to verify the accuracy of the information within a specific period of time. If they can’t verify it, it must be removed from your credit report.

The law also states that any information more than seven years old must be removed, with the exception of certain bankruptcy information, which can be reported for ten years.

Because the burden of proof is on the credit reporting agencies and not you, the consumer, this law is very powerful.

Helpful tip: Up to 50% of all credit reports are estimated to have inaccurate information. Check your credit report annually to make sure everything is correct. By visiting AnnualCreditReport.com, you can get a free copy of your credit report once a year from one of the three major credit reporting agencies: Equifax, Experian and TransUnion.

Fair Debt Collection Practices Act:

This law regulates collections agencies, and what they and your creditors can and cannot do when trying to collect a debt from you. Under this law, creditors and debt collectors must work with you in a professional and reasonable manner. This means that they cannot:

Harass you. Call before 8 a.m. or after 9 p.m. Call you at work if you don’t want them to. Use profane language, threats of imprisonment, seizure of property or violence.

Congress passed this law to prevent harassment and abuse, by making creditors and collection agencies accountable for their actions when attempting to collect debts. If you’re being contacted by creditors and debt collectors and feel that they’re dealing with you in an unprofessional and disrespectful way, tell them to stop by using this exact phrase: “Pursuant to the Fair Debt Collections Practices Act…” and finishing the sentence by saying they cannot continue the behavior that you find uncomfortable and harassing. If it doesn’t stop, you may report the creditor or debt collector to the Federal Trade Commission.

Regardless of the behavior of the creditor or debt collector, if you just want the letters and phone calls to stop, you can write a “cease and desist” letter.Your attorney can give you a sample copy.

Remember: While a “cease and desist” letter will stop a creditor or debt collector from contacting you in the future, it won’t stop them from taking legal action against you for your unpaid debt.

Fair Credit Billing Act:

This law is designed to help consumers challenge information on their credit card bills. Under this law, if you notice a mistake in your credit card bill, you can contact the company who made the charge, in writing and within sixty days of receiving the bill. Be sure to include your name, address, account number, and any details of the mistake in the letter.

The company then has thirty days to respond and investigate the issue. If an error is found, the company is required by law to tell you how they’re fixing the mistake and remove any fees or charges associated with it. If an error isn’t found, they’re still required by law to inform you.