When people have bad credit it can drastically affect their lives. It is not only challenging to get a loan, but landlords won’t consider them and they will be harassed by collection agencies. The cure to improving your credit is to pay off all your debt and pay all future bills on time. However, if you don’t have the means to do this, you can still improve your credit. Here is some advice on how to improve your credit if you are on a fixed income.

Don’t apply for credit. The first thing credit counsellors will tell you is not to apply for credit. Applying for credit signifies that you need money and you aren’t able to balance your finances. However, this is most important if you are applying for loans, such as a personal loan, mortgage or car loan. If you don’t have a credit card you need to get one. Applying for a card will put a minor ding on your credit score, but it is worth the end result. The more credit you prove you can manage, the better the credit bureau will see you. If your credit is so bad that you don’t qualify for a credit card, get a secured card. This means that you pay a small amount, usually between $50 and $300, and the credit card company will give you a card. If your credit is quite poor, you may pay $300 and get a credit card with a limit of $300. This means the funds are guaranteed to the lenders and they aren’t taking a risk on you. However if you pay your bills on time and don’t rack your card the card will help you a lot. It shows the credit bureau that you have credit and you are able to manage it. This is significant in improving your credit.

Only use your credit card for emergencies. This piece of advice is often spouted by parents who want to teach their children not to get in debt. However, if you aren’t using your credit card, you aren’t building credit. The key is to use your card but never spend more than one-third of the available balance. For example, if you have a limit of $300, you’ll never spend more than $100 on the card. This shows the credit bureau that you use your card and you have it under control. Always pay your minimum balance on time. Ideally, you’ll pay your entire balance off each month to save on interest but if that isn’t possible, pay the minimum and your credit won’t be dinged.

Pay off all your debt. Of course, this is great advice, especially for people who have regular income with a little extra for debt payment. Eventually you will have to pay off all your debt but it isn’t as clear-cut as writing out a cheque for the full balance. Start by talking to your debt collectors. You may be surprised at what they are willing to negotiate. You may be able to freeze your interest while you pay off your debt or even have the entire debt lowered if you negotiate a payment plan. It also doesn’t hurt to ask the collector to update your account to reflect “paid as agreed and up-to-date.” Even if the debt isn’t paid off it shows that you are paying your bills and getting out of debt. Remember that the debt will stay on your credit bureau for six years regardless of how fast you pay it off. If you pay it off quickly, then the record will show as “paid” from that date. This is ideal. But, if you are making payments, then you are making payments. Only make the amount that is manageable for your income and don’t get into further debt trying to catch up on an old account.

Tips

Boost your credit rating by increasing your available credit limit. Once you have improved your credit, you may qualify for regular credit cards. If you want to increase your rating before you qualify for mainstream cards, you can increase your secured card limit by adding more funds. For example, if you want a limit of $500, you can pay the $200 difference to a card with a $300 limit. Once you have an available credit limit of at least $3,000 you will see your credit score go up significantly as long as you are paying your minimum and following the one-third rule. However, even if you only increase your credit in small increments, you’ll see an impact on your credit score.

You can put a note on your credit score of up to 100 words that will explain something on your file. For example, if you had a bad time two years ago you could briefly explain the situation and have it on your record. This won’t increase your credit score, but lenders will see it and it may make them be more open to working with you.

Improving your credit takes time. Only do as much as you can within your current budget. It is more important that you keep your current debt in good standing than to pay off old debts. After six years, all old debts are erased from your credit history regardless of their status.