Bad credit can happen to anyone. If you have collection items on your credit report, it can be difficult to get approved for a loan or even a credit card. However, it is not impossible! In this blog post, we will discuss how to pay off collection items and build your credit score back up. We will also talk about what you can expect with excellent credit. Follow these steps and you will be on your way to better credit in no time!
Ignoring Debt
Ignoring your debt is not going to make it go away. The first step to paying off your collection items is to face your debt head on. Make a list of all of the debts you need to pay off, including the collection agency, the original creditor, and the amount owed. This will help you stay organized and keep track of your progress.
Building credit with collection accounts
When you have collection accounts (accounts that have been reported to a collection agency), trying to build credit is going to be tough. However, it is not impossible. There are a few things you can do to try and improve your credit score.
One thing you can do is get a secured credit card. This is a credit card that is backed by a deposit you make. For example, if you have a $200 deposit, you will usually be able to get a $200 secured credit card.
It’s important to remember not to spend more than 30% of the balance of your credit limit. If you are trying to build credit, remember, that’s what your secured credit card is for.
My recommendation is to only spend $5-$10 on the secured credit card and then pay it off each month. Another key point is, you are building credit, not using credit. Want to build credit easily? Check out “The Best and Easiest Way to Establish Credit”
Depending on how old the collection accounts are, building credit is going to be difficult until you pay them off.
Can I qualify for a loan?
Getting a loan with bad credit can be difficult, but it is not impossible. Please realize there are companies who target consumers with bad credit. You will pay higher interest rates and loan fees to get these loans. Ultimately keeping you from your financial goals because of the high cost.
With this in mind, the reason the fees are higher is because you are a high credit risk. So, yes, you can get a loan with bad credit. However, you will be paying a lot of money in interest.
How about a co-signer?
There are a few things you can do to increase your chances of getting approved for a loan. One thing you can do is get a cosigner. A cosigner is someone who agrees to sign the loan with you and is responsible for making sure the loan gets paid back if you cannot make the payments.
It’s important to realize that when you ask someone to co-sign a loan, this loan gets reported to the credit bureau and can affect their chances of getting a new loan because of their debt-to-income ratio calculated by the lender.
Make a plan to pay off debts
Make a plan to pay off your debts. This will help you stay on track and motivated. Having a plan gives you a roadmap to follow and helps to keep you accountable.
There are a few things to consider when making your plan to pay off debt. Some things to think about is the interest rate, balance, & annual fees. Another factor is how much money you can afford to put towards your debt each month. Will you start with the balance that is the lowest? This can be very motivational!
Not sure where to start? You can read “How to repair your credit report DIY)”. Reach out to a Financial Coach or Counselor. The CAN (Coordinated Assistance Network) is offering FREE financial coaching through the end of December 2022.
What does excellent credit get you?
When you have excellent credit you get the BEST interest rates on auto loans, mortgages and credit cards. Not to mention when you have excellent credit, you have the option to have interest free programs and credit card rewards. In addition, You’ll never need a co-signer, buy the things you want, get the best insurance rates, rent the apartment you want and get the job you applied for!
Having excellent credit can be a life changer and I’m here to help! Want to read more? Check out “11 Motivational reasons to get out of debt and enjoy life!”
