5 Ways to Overcome Bad Credit History as a Young Adult
Starting out in life with bad debt or credit history is not ideal. But there are things you can do to avoid the debt traps in your early twenties.
A bad credit rating can be a curse, especially when you are just starting out. You will not get approved for loans from lenders. It will become extremely hard to get personal loans. You will struggle to take out home loans.
The result being you will be driven to look towards high-interest loans that may drive you even deeper into financial difficulties.
It is safe to say, you already know just how dire a bad credit score can make your financial life.
Although the picture above seems bleak, you may still be able to get a loan with bad credit.
But, first things first, you will need to:
Get your house in order
It will not make much difference if you are still stuck in the same old habits that led to the bad credit rating in the first place. So, first, get your finances in order.
Create a detailed budget and stick to it. To write the budget, you will need to have a clear understanding of how much you bring home a month.
Then, follow this up by tracking every cent you spend. The idea is, you want to uncover areas where you can cut back spending. The freed-up cash can now go towards paying off some of your debts.
Also, consider working extra jobs to build up reserve cash as quickly as possible.
Get a handle on your debts
Though you can get a loan with a bad debt, once your budget is in order you now have cash available which you can put towards clearing your debts for good. The next step is to take a closer look at the problems plaguing your credit score.
Did you default on a payment? Were there missed and/or delayed payments? Use any of the free credit report services to get a detailed listing of all the items affecting your credit.
Then, contact your lender to work out a suitable repayment plan that would enable you to pay back the loan. You might be surprised to find that most loan providers are willing to work directly with you to proffer solutions that will help you conveniently pay off your loan while at the same time rebuilding your creditworthiness.
You may also want to consider the option of debt consolidation loans where you roll all your debts and loans into one and then gradually pay it off.
Pay off your loans
With the new repayment plan in place, it is time to begin to gradually pay back the debts. Moving forward, be sure to avoid falling into the same trap that got you into the financial mess in the first place.
Prove you are reliable by paying due credits, debts, and utility bills, among others, on time. You risk having those black marks back on your credit report once again for missed, delayed, or late payments.
Granted, it is not going to be easy; however, by sticking to your budget and seeking ways to earn extra income, you can work your way through your debts.
Avoid making multiple loan applications
While rebuilding your credit score, it is essential that you stay away entirely from applying for any loan yet.
The thing is, every application you make is entered in your credit file and every lender can see the date you made the application and the loan amount you requested.
Sending multiple applications to different lenders within a short time interval sends the message that you are in financial stress and desperate, which is a red-flag to these lenders.
Research bad credit lenders before applying for loan
This point follows the last one; in case, you really need a loan, be sure to first research bad credit lenders that are likely to approve your loan before applying.
Contact the lender and talk to them about your financial situation. Be sure they are able to accept your type of bad credit before requesting a loan.
This way, you only have to send applications to bad credit providers that will approve your loan request.