Turn Bad Credit into Good Credit in Five Steps

By Gina Pogol
Mortgage Credit Problems Columnist

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If you're like one fifth of adult Americans, you've gotten yourself into a deep financial hole. Stop digging! It's time to get help with your debt, establish new habits, and protect yourself against future problems. A debt consolidation mortgage can be an excellent first step to solvency.
  1. Reduce your monthly debt load. While conservative institutions refuse to lend money to borrowers with bad credit, there are many companies eager to help--for a price. You'll pay a higher interest rate than a top-shelf borrower, but a debt consolidation loan may be appropriate for reducing your monthly payments and re-establishing good credit.
  2. Make your payments. Do whatever you have to do to make your payments. Pay your bills online, have them automatically deducted from your checking account, or mail them ten days early. There is nothing you can do to change your past. However, lenders give more weight to your recent payment history than to what happened years ago. You need to be perfect for at least a year or two to begin putting your bad credit history behind you.
  3. Use credit for convenience only. Get rid of all but two or three credit cards. Use them for small purchases only and pay them in full each month. This demonstrates that you can manage credit wisely and gives you something good to show future lenders.
  4. Start saving. Your monthly obligations should be lower after you pay off your cards with an appropriate debt consolidation mortgage loan. Don't let the extra money burn a hole in your pocket! Put that money into savings. Some employers allow for a set amount to be deducted from your paycheck each week and deposited into a savings account for you. Keep it up until you have at least two months of expenses as an emergency fund; six months is even better.
  5. Protect yourself. Many people end up with bad credit because of unforeseen circumstances. You can hedge your bets for an emergency by obtaining liability, medical, or disability insurance.
Overcoming bad habits or bad luck isn't easy. However, with the right tools, a little discipline, and a little time, you can gain control over your finances. Start today! You'll sleep better tonight, and your future will be brighter tomorrow.

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