Bad credit scores can be financially daunting, as they affect many areas of life, from the ability to get a fair loan rate to the ability to find housing or even a job. Sadly, unscrupulous companies often capitalize on those with poor credit. If you are struggling with bad credit, learn what help is available, and which programs you should avoid.
Personal loans may be available if you have a lower-than-average credit score, but be careful. People with bad credit are preyed upon by lenders who recognize an opportunity to charge sky-high interest rates. If you need a loan, watch out for those that specifically target people with bad credit. You will find these have extremely high interest rates. In particular, avoid payday or title loans, which the Consumer’s Union states have average APRs of more than 485 percent. Talk to your bank first about your options. If your credit is too low to get a traditional loan, take the time to improve it before applying for credit.
The government does not offer direct help to people with bad credit, but some government programs can help those with lower credit scores get financial services they would not otherwise qualify to receive. For instance, government-backed loan products such as the FHA, VA and USDA home loans focus less strongly on credit because the lender has the government’s guarantee if the borrower defaults on the loan. Similarly, government student loans, like the Stafford Loan, are not offered based on credit score.
The best financial help for bad credit is the help you provide yourself. Rebuilding your credit takes time, but it is not impossible. The first step is to start paying your bills on time every single month. If you are not in the habit of doing this, you will need to set up a budget and pursue automatic payment options that force you to make the payments on time. Then, check your credit history for any errors and have them corrected. Finally, start paying down your debts to lower your debt-to-income ratio. When paying down debts, start with accounts that are closest to the credit limit, because the ratio of current debt to available debt also affects your credit score.
Credit counseling services can help people with bad credit start making the right financial choices through education and accountability. Some of these programs also offer debt management programs, which can help you get your spending and debt back on track. When choosing a credit counseling service, the Federal Trade Commission recommends looking for an agency that is willing to send free information about itself and its services before asking for any of your information, and that will offer counseling services without debt management for those who do not want the additional help.