Bad Credit - Loans, Help, and Bad Credit Home Loans Advice

Bad Credit Loans, Debt Help, and Advice to Improve Credit

Bad-Credit Information

Bad credit can impact you in many ways, from a lower FICO score to an inability to get loans or even a higher cost of borrowing if you get a loan or mortgage with bad credit. If you have bad credit, there are things that you can do today, like getting debt free and establishing a good track record of payment history. It is never too late to start rebuilding your bad credit to turn your credit problems around, so start learning today what you can do to get started.

Use Bills.com to learn how to improve your bad credit, including learning how credit is established and how to get a loan or a mortgage with bad credit, and to find the resources to solve your credit problems. We get you started on how to solve bad credit and how to get loans with bad credit, but you should start out by getting your credit report, assessing where the credit problems are and start restoring your credit, pay-down your debts and then optimize the cost of your loans and liabilities over time to get back to financial health. The most basic way to help improve your credit: pay your bills on time and pay off debt!

How a Credit Score is Calculated

If you have bad credit, it is important to start out with a fundamental understanding of how a credit score or a FICO score is calculated, so you can take the proper steps to protect and improve your score. Your credit rating is calculated based on five variables, including:

1. Payment history: 35%

Payment history, which counts for approximately 35% of your score, is the most heavily weighted factor used in calculating your credit score. Consistently paying your bills on time has a positive influence on your score, while late or missed payments will hurt you in this area. If you have delinquent payments, the older the delinquency the less the negative impact on your score will be. Collection accounts and bankruptcy filings are also taken into consideration when analyzing your payment history.

2. Credit utilization: 30%

Total debt and total available credit, which counts for about 30%. This section looks at how much debt you have compared to the total available credit on your accounts. If all of your accounts are maxed out, you will be considered a poor credit risk, because it appears that you are struggling to pay off the debt you have already incurred. If your account balances are relatively low compared to your available credit, this part of the risk analysis should help your overall credit score. The score calculation also looks at these two factors independently. Having too much available credit, whether you have used it or not, could hurt your credit score, as statistical studies have shown that people with excessive amounts of available credit are a higher credit risk. Unfortunately, the bureaus do not define exactly what they consider excessive, so best tip is to use credit conservatively and to keep your debt to credit limit ratio low.

3. Time accounts have been active: 15%

Length of positive credit history, which counts for about 15%. The longer you maintain accounts in good standing, the better your score will be. This shows that you are able to make a long-term commitment to a creditor and are consistently responsible about making your payments. If you have accounts with long history (5 or more years) and no missed payments, you should keep these open and current.

4. Variety of accounts: 10%

Mix of types of credit, which counts for approximately 10%. Having several different types of credit, such a credit cards, consumer loans, and secured debt, will have a positive influence on your credit score. Having too much of one type of credit can have a negative impact. Types of credit are called “tradelines” in the banking business.

5. Number of accounts opened recently: 10%

The number of new credit applications you have completed recently, which accounts for about 10% of your score. Applying for too much new credit in a short time period makes indicates that you could be credit risk, as you may be desperately trying to keep your head above water. The models make an exception for people who are shopping around for a loan, so if you are simply applying to see who can give you the best rate on a new loan, you need not worry too much about damaging your credit score.

Six Steps to Improve Credit Scores & Credit Ratings

Here is a brief outline of six basic steps to building and maintaining a high credit score.

1. Keep accounts active

To start building good credit with your credit card, you will need to obtain the card, use it, and make the first payment before you see any rise in your credit score. If you have no credit history, you may have to sign up for a “secured card” as a first step. A secured credit card is one that requires you to deposit money (typically a minimum of around $300) into an account controlled by the credit card company or bank to even obtain the card. This deposit “secures” any debt you place on the card. It is a way for a creditor to lessen risk when dealing with someone who has poor credit or no credit.

A secured card is just as good as any other credit card when it comes to building credit. Like with any credit card, the payment history on your secured card is reported to the credit bureaus. By making on-time payments (on-time payments are the No. 1 factor in determining a credit score) and carrying a low debt load (your debt balance-to-credit limit ratio is also a big credit score component), you build the history and profile that produces good credit.

Another way to build credit from scratch can include getting a low-limit retail store card or a gas card. Just be sure to pay the monthly balance in full so as to avoid the high monthly interest charges that many of these types of cards carry.

You can also build your credit score, by having someone co-sign on a debt with you. Because the co-signer takes full responsibility to repay the debt, if you do not, co-signing is risky and is something that the co-signer should be wary of doing. Every person who considers co-signing on a loan should make sure to understand the risks of co-signing. Still, the risks for the co-signer does not reduce the positive effects for your credit score of having a co-signed account report in good standing to the credit bureaus.

2. Review your credit report regularly

Review your credit report once a year. The higher your credit score, the better. A score below 680 usually results in a borrower being charged a higher interest rate or denied credit. If the report includes items that are inaccurate, request the report be corrected. You can receive a free copy of your credit report at AnnualCreditReport.com, where you are entitled to one free report from each of the three bureaus every year. I recommend that you stagger your requests, accessing one report every four months in an alternating fashion. Bills.com has some terrific information about how to dispute items on your credit report.

3. Borrow and repay money

Another good way to build credit history is to pay off a small loan. Borrow from your bank or credit union to purchase a used car or a larger purchase, such as an appliance. Pay the loan on time and in full. Pay any student loans on time every month. (Remember: On-time payments are the No. 1 factor in determining a credit score.)

4. Keep a stable employment history

A stable job history is another factor that lenders will consider when giving a loan. Creditors look at job history to understand a consumer’s stability and income.

5. Protect yourself from identity theft

Identity theft is at an all-time high, and it can destroy credit ratings. Remember that identity theft occurs both “offline,” and through the Internet. Protect yourself from unscrupulous individuals who could go through your trash, steal account numbers online or get personal information through complex “phishing” scams. Record all important financial information and account numbers in a secure place. Shred all documents that contain personal information. Never give out personal information in e-mails or in a phone call you did not initiate.

6. Establish and stick to a budget

A good way to maintain a healthy financial lifestyle is to create — and stick to — a household budget. Many people fall into credit score disarray by spending beyond their means, building up debts, and maxing out credit cards. In budgeting, list ongoing monthly expenses (fixed expenses like rent or mortgage payments). Add variable expenses that are “must-buys” (food, gas, medicine). Leave two categories for savings and spending cash (for unexpected expenses and entertainment). Add monthly net income (the amount left after taxes and other paycheck deductions such as health insurance and 401(k) contributions). A free budget guide is available at Bills.com.

Bad Credit Mortgage and Loan Options

Once you understand what goes into a credit score and have been armed with tips on how to fix bad credit, the next step is to get some quick advice on how to actually qualify for loans even if you have bad credit.

FHA Loans are Ideal For People With Bad Credit

Anyone with less than good credit look at FHA or government loan programs. FHA loans are available to people with bad credit, where bad credit can disqualify a person from most loan programs. Please read the Bills.com FHA mortgages resource to learn more.

Co-Signers on a Loan

If your spouse has good credit, that may help mitigate your own bad credit. Ask yourself, does your spouse have a FICO score? If they have one, is their credit score excellent, poor, or somewhere in between?

It may be possible for the two of you to qualify together for a loan as co-borrowers, but what kind of loan will depend on the income each of you earn, the credit scores both of you have, and the equity available in your home. In general, the workaround for bad credit loan needs is to have the person with the better score apply for the loan by themselves and keep the borrower with the lower score on title only.

To learn more about credit reports, credit scoring, and what it means to you, I encourage you to explore the wealth of material offered at the Bills.com credit resource page.

Comments (16)

Kadienne G.
Teaneck Township, NJ  |  November 17, 2011

I am approx. $30,000 in credit card debt and was was considering bankruptcy. I spoke to the BK attorney who advised me to stop paying all bills approx. 4 months ago. I have since decided against This and am trying to settles my debts. All accounts are seriously delinquent. Will settling the debts help my credit at all since I am so behind in payments.? My credit score is about 500. I am also in foreclosure, I am working on a modification.

(0)

Bills.com
November 17, 2011

Bringing your debts to a $0 balance will positively affect your score. However, the damage from a foreclosure or a record of repeated late payments on a mortgage could offset any gains you make from settling the accounts. If your credit is going to be quite low for a period of time, it seems that bankruptcy could be the cheapest and fastest way of clearing out your debt, if you qualify for a Chapter 7.

(0)

Cristina H.
November 03, 2011

If a collection/charge off/delinquent account is passed the SOL, but not quite 7½ years old, should it still be paid? What are the benefits to paying and not paying? Strictly speaking with the accounts that are passed the SOL. Thank you.

(0)

Bills.com
November 04, 2011

Let us look at the facts and terms you shared in your message, and others that were implied:

• Statute of Limitations. Just because a statute of limitations has passed does not mean a creditor may not collect a debt, except in Wisconsin. The passing of a statute of limitations gives a defendant in a lawsuit an affirmative defense, and nothing more. See Statute of Limitations to learn more.
• Time and Credit Reports. Seven and a half years is how long most derogatory items can appear on a consumer's credit report file. The 7½-year rule has nothing to do with charge off. It does not determine whether the debt is collectible. It also has nothing to do with a state's statute of limitations. See the Bills.com resource Fair Credit Reporting Act to learn more about what can appear on a credit report and for how long.
• Charge-off / write-off. An accounting term that means a creditor has moved an account from its current-accounts book to its general ledger as a bad debt. It does not mean the account is canceled, forgiven, or extinguished. See the Bills.com resource Charge Off for a more complete discussion of this oft-misunderstood phrase.

A collection agent working on a debt older than a state's statute of limitations may contact the consumer to attempt to collect the ancient debt (except in Wisconsin). It can even file a lawsuit against the consumer. However, the consumer has an affirmative defense if there is such a lawsuit.

My advice? You mentioned the debt is nearly 7½-years old. If the original creditor or collection agent that owns this collection account is not pursuing you, then leave the account be. If the creditor is pursuing you, then validate the debt. If the creditor is able to validate the debt, then negotiate a pay for delete.

(0)

Cristina L.
Richmond, VA  |  October 24, 2011

My children have ssi checks of 674.00 * 2=1,348.00 a month. My rent now is 428.00 a month. I have a 246.26 car payment a month, and misc. bills like cable,cell phone, and home phone. I have 2 more years of car payments. They have been getting their income for over two years. Their 11, and 7 years old. I have one bad judgement of 550.00 on my credit report. My credit scores are between 640-667, and i just recently got a job two months ago at ihop but i don't put but i only report 10% to the irs. I am also a student. Is their anyway that their income can count towards the loan and my income of 700.00 a month just be extra to qualify for a home loan. Do you know of a bank or mortgage company in virginia that helps improve credit to qualify for an FHA loan?

(0)

Bills.com
October 24, 2011

I cannot speak for every lender, but in this economic climate, I cannot foresee a mortgage underwriter approving a loan for a student who recently started working at a part-time job. I understand your question regards including Social Security benefits your minor children receive, but there again, I do not foresee many mortgage underwriters allowing you to include that as your income.

My advice?

1. Focus on cleaning up your credit score
2. Negotiate a settlement of the judgment that includes a pay for delete
3. Report your income accurately to the IRS. You will need to show a steady, adequate income for two years to qualify for a loan
4. Finish your degree, which will boost your earnings potential

(0)

Kenny S.
Flippin, AR  |  September 08, 2011

I have a credit score of 490. If I put 75% down on a new car will I be able to get a loan? I could pay 100% down but I would like to borrow the 25% to start building my credit back up.

(2)

Bills.com
September 08, 2011

A sub-500 score is considered very poor, making you ineligible for most loans. However, there are car lenders that work with anyone. Just expect to pay a very high interest rate.

Look into a secured credit card, too, as another way of improving your credit score.

(0)

Jodi D.
Cupertino, CA  |  August 30, 2011

I don't owe a lot on my loans and credit cards. My scores are poor because I was out of work for 8 months and couldn't make my monthly payments on time. Now I am able to make larger payments towards my loans and credit cards. I will have them all paid off by the end of this year, however, will doing this hurt or help my scores? Thank you in advance,

(0)

Bills.com
August 31, 2011

This will help your credit scores and your credit profile. When you pay off your debts in full, having zero balance relative to your credit line will help your score as will the simple act of making current payments (payment history is the largest single credit score variable). If improving your credit score is your goal, then keep plugging away until your debts are paid off. After that, open up new lines of credit and never miss a payment. Good luck.

(0)

Daniel B.
Tavares, FL  |  August 15, 2011

Hey I have a question. What if you never pay the account off. Will it stay on your credit report even after 7 years? If so what would be the point in paying it off, if it is going to be a negative for 7 years an then come off. The reason I ask is because I recently paid everything off on my credit report ( a few delinquent accounts). I Have a friend who has delinquents accounts on his and he hasn't paid any of them. He has much larger accounts. Are score a similar. So my point is there a real benefit to paying them off? Because so far I wouldn't think so. Because in 7 years if the information is going to to come off both of are accounts no matter what. I'm thinking, did I waste the money paying them off?

(0)

Bills.com
August 15, 2011

An account will fall off your report after 7½ years from the date of the last delinquency. The point in paying it off is to avoid harm. There are effects other than those on your credit, if you default on a debt. Not paying your debt can lead to a wage garnishment, a bank levy, or a lien. It makes much more sense to pay one's debt than to choose to not pay it.

(2)

April W.
Anchorage, AK  |  June 25, 2011

I just paid off a collection bill that hit my credit as Derogatory. It hit my credit score REALLY bad and lower it by 50pts. It was a very small bill. Since I paid it off will this higher my credit score or will by score be affected for the next 7 years??

(0)

Bills.com
June 26, 2011

The damage to your credit score was caused at the date of delinquency, and is not undone when the delinquent debt is paid. Time, and making payments on time and lowering your debt utilization, heals all wounds to a credit score.

(0)

Aletheia L.
Kent, WA  |  August 31, 2011

I have bad credit. And tried to apply for a credit card at different companies. They turned me down during the application. I need credit card to rent a car for travel purposes.

(0)

Bills.com
August 31, 2011

You should look into a secured credit card. You make a deposit on the card and then can use it for charging. Make sure the secured card you apply for reports to the credit bureaus. Look around for one that will allow you to deposit enough that will meet the needs of a car rental agency.

(0)

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