Millions of Americans these days have bad, or even horrendous credit. Because of the recession, foreclosure rates, student loan default rates and past due credit card balances of 90 days or more are not uncommon. If you've been through financial difficulty and you worked hard, doing everything you could to avoid financial peril, you should not feel ashamed and you're definitely not alone.
Now that your credit has taken the plunge however, it's time to pick up the pieces. Bad credit will not last forever, it will take several years to rebuild but you can get there and be financially stable, even wealthy in 10 years if you take the right steps, work hard and get a few breaks here and there. Here's what you need to do:
1. Deal with the Debtors
If you have far past due balances and are getting collection calls ten times a day, you cant just ignore this. Credit card companies can and will sue you and get a judgment to garnish your wages or confiscate your federal tax return. Call your creditors, offer to pay whatever you can, however little it may be and make sure you pay them on time. If a debtor is malicious and totally unwilling to work with you (and there are many of them out there), then contact a non-profit credit counseling service. These services can talk to your debtors on your behalf and these professional are often able to help you reach an agreement with your creditor.
2. Get a Stable Income and Good Health Insurance
In order to rebuild your credit the most important thing you will need is a stable job over the next several years. Preferably, one with good health insurance. Work your way into a good field, where you are sure to get a reliable paycheck that covers all your bills. Health insurance is imperative. There are many who do not have employer provided health insurance, who go without private health insurance to save money. It's a simple inevitability, however, that you'll get into an accident, tear a tendon in your knee, get a worrisome looking pimple that needs a biopsy, or any number of other things. ER visits and medical bills can and do put people without health insurance in thousands of dollars of debt over night, every single day.
You don't have to live like a pauper, but you do need to live well within your means. Never get an apartment or a car that you'll have trouble affording. Cook at home, eat out on a rare occasion and downgrade to a cheap cell phone plan if you have not done so already.
4. Save Your Money
If you do not have family to turn to during tough times, this point can be critical to survival now that you don't have credit as a fall back. Since you're credit is abysmal, if you get hit with a big random bill that you need to pay (a common one is car repair), you can't ring up credit debt to pay for it. You'll have to pay cash, so you better have some stashed away.
5. Get a Secured Credit Card
Anyone can get a secured credit card. You put money from your bank account on secured credit cards and can't go over what you put on the card. Secured credit cards will help you begin rebuilding a positive credit history.
6. Avoid the Pitfalls That Got You Here in the First Place by Building a Savings Account
At some point, when your credit is strong enough again, you'll receive more credit offers. It's important you realize that credit is not there simply for the taking. Credit cards and personal loans with high interest rates are almost always a bad idea if you have no savings. This is because, even though you intend to pay off the balance each month, if you have no savings, there will be one month where you'll need to carry a balance. This is how it starts, how debt snowballs. Like regular income, savings is critical to financial stability and a debt free life.