Have you been turned down for a loan or a credit card? Do you know why? The simple answer is because you have a poor or bad credit score. But there’s more to it than just your score. If you want to improve your score you need to first get and review your credit reports. You have three reports – one from each of the three credit reporting bureaus. However, the easiest way to get them is on the website www.annualcreditreport.com, where you can get all three at once.
Once you have your reports
The next step will be to review your reports very carefully to learn why you have such a low credit score. The most common culprits are past due accounts. Despite what you might want to believe no debts are ever completely written off. They can be listed as past-due, charged off (sent to a collection agency) or the lender could sue you and get a judgment to collect its money.
If you find you have payments that are more than 90 days late this is definitely having a serious impact on your credit score. However, there are things you can do to deal with them.
Pay it off
Of course, the best option is to pay your entire past due balance by making a lump sum payment to cover its total amount. Do be aware that the further you are behind the more your minimum payment will be because of late fees and the interest that’s been added to your account. However, this is by far the easiest way to keep your debt from being charged off and sent to a collection agency.
Talk to your lender
A second way to deal with a past due account if it’s too big for you to pay all at once is to talk to your lender about spreading your balance over two to three months. That way you’ll have extra time to get caught up. In the event the lender won’t agree to a formal plan that would allow you to spread your payments over some period of time you could still send in extra payments until you get caught up.
Consolidate the debt
If you could get a loan to consolidate a debt it wouldn’t be paid off because all you’ll have done is shuffled it around to make it easier to pay. However, if you consolidate the debt this will bring your account current and help you avoid a charge-off. But, of course, you will now have a new debt you will be required to pay off. You might be able to consolidate the debt by transferring your debts to one of those 0% interest cards. But if you choose this option be sure to understand the terms of the balance transfer so you won’t be shocked if your payment goes way up when your introductory rate ends.
Try to settle your past due accounts
Another option and one that’s become increasingly popular since the Great Recession is to try to work out settlements of your past due accounts with your lenders. What this amounts to is you offer them lump sum payments for less than you owe. When a lender agrees to accept your offer it will then treat your debt as paid in full. Of course, when you make the settlement offer to a creditor you will need to have enough money to pay for the settlement or you’ll at least need to be able to borrow it. Do note that when you settle an account it will be reported to the credit bureaus not as “paid in full” but as “settled” or “settlement”.
Get consumer credit counseling
Another popular option is to get consumer credit counseling. In this case you will be assigned a debt counselor who will review all of your personal finances and help you develop a plan for getting caught up on your debts. This is typically called a debt management plan (DMP). Your counselor will also negotiate with your lenders to get your interest rates reduced and any fees waived. Your debts will be consolidated in that you’ll no longer be required to pay your lenders. but instead will send a check to the credit counseling agency once a month. And that payment will be much lower then the total of the payments you’re now making.
File for bankruptcy
This is often referred to as the nuclear option as it’s the only way to get all of your credit card debts completely wiped out. This is not the ideal solution but if your debts are just totally overwhelming it might your only real option. However, before you go to an attorney to file for bankruptcy, you should talk to an approved credit-counseling agency to see if there might be some other ways to get caught up.