Life road bumps. They are a thing. One minute you are cruising along and everything thing seems fine. The next minute, bam! An unexpected expense comes out of the blue. Maybe your car breaks down, or your pet has to go to the vet, or you break a leg trying to prove to your friend that you can jump into the pool from the roof of your house. These major expenses can throw your finances into a state of shock. So what are your credit options once you've damaged your credit? How can you work to increase your credit score?
One of the most important things to understand is that less than 70% of Americans have over $1,000 in savings, so you're not alone in this financial battle. Setting up a good budget and building your savings is going to be key to making sure you are able to pay for future expenses without putting yourself in a bind.
Rebuild Your Credit Score
We recommend Self Lender as a tool to either establish a credit history if you don't have one, or to start building some good payment history if you have some negative marks on your credit. Self Lender is basically a loan you make yourself to open a savings account. Choose the $25 monthly payment and you'll pay $25 a month for 24 months. At the end of the loan, you'll get $525 + any interest you've earned. Users have reported boosting their score by up-to 100 points over the course of their loan. We recommend this product to anyone with bad credit that can afford a $25 monthly payment.
We love this product for three reasons:
- First, you are building savings, so this is a good forced way to build up an emergency fund.
- Second, your monthly payments are reported to all three credit bureaus, allowing you to build a payment history. Payment history makes up 35% of your credit score.
- Third, you'll get access to your credit score to track your progress and credit monitoring for free.
Open A New Card
Roughly 40% of your score is influenced by the types of credit you have access to, and the amount of credit you are using. If you don't currently have a card, or maybe you only have one card with a low credit line, opening a new card might make sense. For this use case, we have two recommendations:
- Use Cardmatch to see if you are pre-qualified for any credit cards that have low interest rates or come without an annual fee. CardMatch will pull a soft credit inquiry (which does not impact your credit score) and match you to credit card offers from multiple banks at the same time. This will require your name, address, and last 4 digits of your social security number. Find your CardMatch matches here.
- If you are not matched to any offers from CardMatch, head over to Credit One. Credit One caters to users with bad credit. They'll also pre-qualify you for a credit card before you apply, so you don't damage your credit with a hard pull trying to get a new credit card. The downside here is that their interest rates tend to be a bit higher. Their annual fees can also be high, ranging from $0 - $99 depending on what you are pre-qualified for.
Get A Secured Card
If you don't find yourself with a match in CardMatch or through Credit One, you will probably want to consider a secured card to start building a credit profile. A secured card will function like a credit card, but your credit limit will be secured by a deposit you put down. There's normally a $200 minimum. Our recommendation here is thecard. It's one of the best secured cards on the market, coming in with no annual fee, and giving users the opportunity to earn 1% cash back on all purchases. Rewards are typically reserved for those with good/excellent credit.
Recovering from bad credit isn't going to be a quick route, but you do have options. One of the options above with on time payments and a smart budget plan will help take bring your credit score back to good health in 2018.