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How Long Does It Take to Repair Your Credit? Part Four – Risky Things You Can Do To Speed Up Your Credit Repair

How Long Does It Take to Repair Your Credit? Part Four – Risky Things You Can Do To Speed Up Your Credit Repair

Part one explained the things you shouldn’t be doing, part two explained how you need to change your finances, and part three explained the things you should be doing. This article offers additional ways to repair your credit, but they come at a risk. These are the risky things you can do to speed up your credit repair.

This Article Is Specifically For People With Poor Or Terrible Credit Ratings

This article contains specific advice for people who have a terrible credit rating or a poor credit rating, and it is all great advice, but it needs one vital feature. To make any of these work, you need to have your finances, your spending, your expenses, your budget and your income under control. If you have slowly been creeping into more and more debt over the last few years, then these will not work for you because you need a solid grip on your finances. You cannot be the sort of person who has no money left just before each pay day. Consider reading part two of our credit repair series to maybe help understand why you need to regain control of your finances before you try to rebuild your credit score.

FICO Score, Credit Score And Credit Rating

As with the other articles in our credit repair series, the words FICO score, credit score and credit rating are interchangeable. They all mean the same thing. In addition, when we mention credit bureaus, we mean the credit scoring companies such as Experian.

If Your Credit Is Terrible – Get A Bank Account And Wait It Out

(Not A Second-Chance Bank Account)

Risk Of An Extra Expense (Get you finances in order first)

One firstly assumes that whatever was causing your credit troubles has been fixed. Maybe you are not flush with cash, but the “Reason” why you sank into credit-score trouble has been fixed. For example, you may have missed a bunch of payments, you may have gone bankrupt, you may have had your identity stolen.

You May Have To Take The Sensible Route

When you have a terrible credit rating, there comes a time when the only sensible course of action is the wait it out. Things such as overdrawing and missing payments will stay on your credit report for around two years, but they will stop affecting the actual score within between six months and a year. It is sometimes better to wait for six months to a year before you start trying to rebuild your credit.

Your Alternative Options Are Not Pretty
The options open to you when you have a terrible credit rating are not pretty. Almost every credit card you sign up with will come with fees, horrible terms and conditions, and disgusting interest rates. Even worse are the very few loan options that are available to you. There are terrible-credit loans that come with 400% APR. The image below is from a British (UK) website where they had interest rates of over 1000%.

Very high interest rates for people with bad credit

Avoid Second-Chance Banks

If you are in a position where you do not have a bank account, then try to avoid second-chance banks. They often charge fees, and they often have horrible terms and conditions. Plus, I am not saying that they are all bad eggs, but it is in their interest to keep your credit rating low so that you do not leave them. That is why some of them will sting you with horrible fees if you accidentally overdraw, so that it is harder to get out of your unplanned overdraft. It may be better if you use an online money account such as PayPal or Transferwise Borderless. Look for an online money company such as an online wallet that allows you to do most of the things that you can do with your bank.

If Your Credit Is Terrible – Use An Online Money Account And Wait It Out

Risk Of More Debt!!! (Get you finances in order first)

Again, one assumes that whatever was causing your credit troubles has been fixed. While you are waiting it out, you may need an online money account to help you pay your bills and so that your employer or your clients may pay you. There are quite a few options open to you. Here is a short list to get you started. Most of them come with an ATM card, and most companies are willing to pay you into them. When I mention the words, “Money Company,” I mean companies such as these and others like them:

Use A Money Company While You Wait Out The Storm

Many online money companies, such as the ones above, do not charge you maintenance fees, and they do not have a slew of hidden fees like many of the predatory poor-credit/second-chance money companies. Here are a few of the things that the money companies listed above allow you to do that means you may use them as a temporary replacement for your bank account.

  • Most of them offer either a VISA card or Mastercard that you may use at ATMs, online and in stores
  • They allow you to pay your bills in one way or another, such as through their acceptance by online checkouts, by direct debit, or even by manual payment
  • You may be paid by other citizens and most of them have functions that make it very easy for a company to pay you
  • You may pay other citizens, and in some cases you are able to pay others even if they are not signed up with the money company that you are
  • All of them allow you to withdraw your money into other accounts, into banks, and most allow you to withdraw your money at ATM machines
  • Maintenance or service fees are non-existent or very low
  • All of their fees are lower, less frequent, and far less predatory than all second-chance bank accounts
  • Some offer buyer and sender protection that beats that of credit cards

There are some obvious benefits to having a bank account that these money companies do not have. For example, no matter how well you use online money accounts, they are probably not going to report your behavior to the credit bureaus unless the online money company is some sort of bank or credit company. Don’t forget that you only need to manage long enough for your credit rating to repair itself a little. After six months to a year, you may start applying for bank accounts again. Start with the most basic accounts. Ask the bank which accounts they have that you are most likely to be eligible for.

If Your Credit Is Terrible – Get A Good Secured Credit Card And Wait It Out

(Be Very Aware Of Hidden Fees)

Risk Of More Debt!!! (Get you finances in order first)

Again, one assumes that whatever was causing your credit troubles has been fixed prior to looking for a new credit card (of any sort), otherwise you are purposefully sabotaging your own finances.

I give you this bit of advice with the best possible intentions, but I may be throwing you into a den of snakes. We have tried and tested a great many secured credit cards in our time, and most of them have some form of hidden catch or snag that makes them a very bad deal for users. Even the ones that seemed like a good deal one year had managed to trash their reputation between our reviews because they changed their terms and conditions.

Even if you read every word of their terms and conditions, and even if you are 100% sure that the deal is fair and that it doesn’t have any hidden or nasty fees, you cannot be sure it will stay that way.

Paying To Borrow Your Own Money

You are very likely to get a secured credit card because you pay for the card in advance. For example, you pay a deposit of $200, and they send you a credit card. The credit card has a credit limit of $200. When you borrow money from the card, they will charge you interest. In that sense, it is just like a regular credit card. The big difference is that if you default on the card, then they keep your deposit.

You are paying a company to charge you interest to borrow your own money. It is ludicrous on the surface, but if you really need a credit card to do things such as hire a car or stay in a hotel room, then a secured card may be the answer. Also, since it is a credit card, the lender is likely to report your good (and bad) account behavior to the credit bureaus. Even though you are paying to borrow your own money, you may slowly rebuild your credit rating by handling the card in a responsible manner.

Beware Of Scams And Uncooked Clams

There are so many scams and horrible terms in the secured-credit-card industry that I feel a little guilty suggesting that you try one. I feel like I am throwing you into a den of snakes because it is so hard to figure out which are the good secured credit cards and which are the bad. Even if I gave you a list right now of the ones we know are good, we cannot guarantee that they will have changed their conditions, or even changed management/owner by the time you read this article. Here is quick list of the types of scams/horrible-conditions that some secured credit cards have. This is not a comprehensive list, it just gives you an idea of the sort of thing to look for.

  • Dropping you down to a very high penalty APR if you overdraw
  • Having you pay a maintenance fee and making it very difficult to get out of your account
  • Running hard searches on your credit as a security measure when it is really just to keep your credit score low
  • Terrible customer service that ignores your requests to cancel your account
  • Not informing the credit bureaus after you have paid off the card and canceled it
  • Making you wait five days before your payment is credited on your account to increase the chances of you paying late and incurring their fees
  • Not giving you your deposit back when you cancel the card
  • You give them a certain amount and they give you a lower credit limit than the amount you paid as a deposit
  • Charging you an APR fee on a portion of your credit limit that you are unable to use
  • Adding large fees for things such as checking your account balance
  • Charging transaction fees for paying your balance
  • Hidden fees and high (predatory) penalties
  • An annual fee and a monthly fee
  • Taking the annual fee a few weeks after you sign up
  • Giving you a free trial that rolls over into a paid account that is hard to get out of

Maintenance Fees Exist, But Try To Avoid Them

I really hate secured credit cards that charge a maintenance fee. This is a fee that they charge monthly, or they charge annually. The worst ones charge a monthly and an annual fee.

Try your best to avoid them because their risk is already so minimal that there is little excuse for a maintenance or service fee. On the other hand, the secured-credit-card industry is such a polluted wasteland that it is sometimes better to take a slap from their maintenance fee than it is to take a beating from their hidden fees. If the best secured credit card you can find also comes with a small/reasonable maintenance fee, then consider it.

If Your Credit Is Poor – Consider A Credit Card With A Tiny Credit Limit

(Not A Credit-Repair Card)

Risk Of More Debt!!! (Get you finances in order first)

Do not get a credit-repair credit card. Finding a good one is as difficult as finding a sexy nun. They probably exist, but you are going to have to spend a long time looking for them. If your credit is poor, then consider a credit card that has a very tiny credit limit.

Sexy Nun

Avoid credit cards that have a maintenance fee, and be very aware of the terms and conditions because the only nasty surprise should be the APR. Be very careful when picking a credit card if you have a poor credit rating because the industry is swarming with predatory companies.

A credit card with a tiny credit limit is easier to get. Plus, it is better for your credit score if you spend on your credit card and then pay it off every couple of months. If you have a high credit limit, then clearing your balance every couple of months is going to become very difficult.

Go for legitimate (big named branded) credit card companies rather than the smaller fly-by-night or predatory companies. At the time of writing, Capital One offers very fair deals to people with a poor credit rating. Again, if you go for a credit card with a lower credit rating, and if you run a soft search (per-qualifying search) before you complete a full application, then there is a stronger chance that you will get the credit card.

As your credit score improves, you may consider asking the credit card company to raise your credit limit a little.

If Your Credit Is Poor – Consider A “Tiny Tiny Tiny” Loan

(Not A Pay-Day Loan)

Risk Of More Debt!!! (Get you finances in order first)

Do not get a payday loan. You probably remember the image below from the other articles in this credit repair series. It shows you the APR rates of short-term loans and some of them are over 1000% APR. The image below was produced by OppLoans. I did a review of the OppLoans service right here, and they are poor-to-average company. The image below shows the average rates you pay for pay-day loans, title loans, and bank overdrafts when you have poor credit.

OppLoans compare their interest rates to others

There are three good reasons why you should consider a very small loan if you have a poor credit rating. The first is because it will help bump up your credit score as-and-when you pay it back correctly. Secondly, a smaller loan is easier to get than a larger loan. The final reason is because a smaller loan is easier to pay back, and the last thing you want is more unpayable long-term debt in your name; especially if you have a poor credit score because of your extremely high amounts of debt.

Before you run out and get your small loan, you need to consider a couple of things. The first is if the lender reports to the credit bureaus. For example, many pay-day and short-term loan companies will not report to credit bureaus unless you do something wrong. There is no point in getting a loan if the credit bureaus are not going to find out about it. Be very careful how you get your loan if you are looking for lenders that do not use Chexsystems, or lenders that do not use credit checks because even though they may be more willing to lend to you, there is a strong chance that they do not report to the credit bureaus. If they do not report to the credit bureaus, then your loan with them will not improve your credit score.

The second thing you need to think about is if the lender will actually lend to you. Please do not fall for the emails, letters and texts that claim you have been pre-qualified because they are always bullsh*t (they send them to everybody as a way to get people on their websites). Many loan companies and comparison websites allow you to run soft searches on your credit prior to entering an application for lending. Run soft searches, the type that do not harm your FICO score (your credit score), and find out if you are eligible for a loan. It is often harder to get a real loan (not a short term loan or payday loan) than it is to get an overdraft or credit card, and this is especially true if you have poor credit. The last thing you want to do is put through an application for a loan only be refused and have a negative mark appear on your credit score.

If Your Credit Is Poor – Wait It Out While Building Goodwill With Your Bank

Risk Of More Debt!!! (Get you finances in order first)

If you still have a bank account, and if you still have a free bank account that doesn’t charge you a monthly or annual fee (maybe with a mainstream/High Street bank), then you may be able to bump up your credit score in the near future.

Your credit rating may be in the toilet, but if you keep using your bank account for getting paid and for paying your bills, then you continue to build goodwill with your bank in the form of a banking history. If your bank sees that you are handling your account correctly, then in the future when your credit rating improves over time, they may become more willing to lend to you.

Consider waiting six months to a year. If you make no further mistakes that damage your credit score, then your credit rating will improve a little over the six to twelve month period. Past mistakes will matter less and less to your credit score. After six months to a year, start asking your bank what lending options are open to you. They may be willing to offer you a credit card with a low credit limit, or you may offer you an overdraft. A new bank may slam the door in your face, but a bank that you already have a history/relationship with is more likely to take a risk by giving you access to their lending facilities.

If Your Credit Is Poor – A Small Bank Overdraft Will Help

Risk Of More Debt!!! (Get you finances in order first)

If your credit is poor, but you now have a sufficient credit rating in order to qualify for lending services, then your options are probably pretty ugly. It is likely that most of the lending companies you have approached will only offer you terrible interest rates and nasty terms and conditions.

If you are in this position and you are wondering which is the best lending option for you, your best bet is a small overdraft on your checking account. The reason for this is because your credit rating improves if you frequently use a lending service, and using your overdraft frequently is very easy. The more you use it and pay it off, then the more it affects your credit score in a good way.

If you have a small overdraft, then you can use it and pay it off quite frequently, and you can do it without even trying. Let’s say you get an overdraft on your checking account with a limit of just $200. You may spend every penny in your account so that you are frequently into your $200 overdraft. However, you probably have a job, and when you are paid your wages, it comes to more than $200. This means that your overdraft is frequently paid off at least once per month.

Using and paying off your overdraft is not going to drag your credit score from 450 right up to 600, but it is going to give your credit repair process a little bit of momentum.

Where Are The Rest Of The Tips?

Distracted Joke

Those are the options you should consider if you have a poor or terrible credit rating. The websites and companies that tell you there are other ways to boost your credit score are lying to you (they are probably selling something). Credit repair companies, debt consolidation companies, and most of the credit repair industry will not have your interests at heart. The methods listed on this article are your best bet for increasing the speed of your credit repair, and even the tips on this article should be used with extreme caution. Almost all of the tips on this article come with the downside of adding more expenses into your budget, or they add more debt into your life. Strongly consider avoiding these tips and working on paying off your debt, saving, and wealth building instead of working on your credit score.

Pay Off Debt Or Invest?

There is no right answer to the pay off debt-or-invest problem. Some people are going to benefit more from paying off debt where other people are going to benefit more from investing.

When Are You Getting A Mortgage?

If you are looking to get a mortgage any time soon, then it is best to work on your credit rating, which means paying off your debt and lowering your debt amount is a good idea. Investing can wait because the money you lose on a poor quality mortgage deal is probably far more than you will make from short-term investing.

What About Your Motivation?

Some people are more motivated when saving than they are when paying debt. After all, why work so hard just to hand your money over to a lender? It feels far more gratifying to invest and/or save rather than pay off debt. Some people do much better if they invest and/or save until they have enough money to clear a loan or a credit card balance. They do it better that way rather than when trying to pay off their debt in small chunks.

Growth Vs. Interest Lost

Take a look at how much money you are planning to make if your investment goes correctly. Figure out how long it will take for you to see the profit you are planning. Now, look at how much interest you will pay over that period of time and see if the profit you make will be less than the interest you pay.

A Bit Of Both With A Contingency Fund

People who are paying off their debt should also be saving their money in some sort of contingency fund. The contingency fund is made up money you save in a flexible savings account. Share your money between paying off your debts and putting money into your contingency fund. When something goes wrong and you need money fast, you may use your contingency fund rather than getting into more debt. This will help you grow your credit score more efficiently in the long run.

What If You Cannot Help Getting Into Credit Card Debt?

Some people have a very hard time getting out of credit card debt because as soon as the credit card has a bit of money on it, the user maxes it out again. Many people do not have the self control needed to keep and have credit cards without maxing them out. If you fall into that category, then you need to make your minimum payments and you need to invest your money somewhere else. When you have enough invested to pay off your maxed credit card in one go, then liquidate your investment and pay off your credit card balance. Once your credit card is paid off, you need to cancel your credit card and stay away from credit card debt for the rest of your life.

Prioritize Your Investments And Your Debt Repayments

The answer as to if you should invest or if you should repay your debt will depend upon your circumstances. For example, if you have federal loans that are income-contingent, then you may wish to hold off paying them down until your investments start paying off. You may have a very expensive credit card that you wish to get rid of before you start investing in your own business. On the other hand, there may be a killer investment on the horizon that may pay off in a big way, so you may wish to hold off paying down your debt and put your money into the investment instead.

Conclusion – Build Wealth First And Your Credit Score Second

Some people pay a lot of money to credit repair companies, to loan consolidation companies, and to things such as credit repair credit cards…and it is often wasted money. In most circumstances, the person paying for these services has not fixed the problem that sank him or her into the boggy swamps of a low credit rating.

It is frightening how large the credit-repair industry is. There are people paying $15 per month for credit reports, and $12 per month for credit repair credit cards, and $22 per month to their credit repair/dispute services. If they were putting that money into a saving account rather than into credit repair services, then they would be far better off at the end of the year.

There are times when building credit may be a good idea, but controlling your spending, improving your income, lowering your expenses, and making smart investments is far better for your long-term success. Saving and wealth-building will always beat a great credit rating. Which do you think is going to guarantee you the best mortgage? A good credit rating, or the ability to put a 45% deposit on the house you are buying?

Control your spending, improve your income, manage your expenses, make smart investments, and then think about your credit score.

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Part One – Factors That Increase Credit Repair Times
Part Two – Your Acceptance Of Responsibility For Your Spending And Your Income
Part Three – Risky Things You Can Do To Speed Up Your Credit Repair
Part Four – (You Just Read It)

About The Author

Ash The Great

After a varied career in different industries from the hospitality industry to the financial consultancy industry, Ash now spends his days working as a professional writer.

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