Steps to Reverse Bad Credit—and Why You Want To

Updated: Apr 10

Rejection is a rather unpleasant experience—especially when you get your hopes dashed to pieces. In the financial ecosystem we are part of, having bad credit leads to rejection or sometimes worse—terrible interest rates. What can you do to avoid this vicious cycle of rejection and high-interest rates?


Having bad credit can lead to rejection and other unpleasant feelings
Having bad credit can lead to rejection and other unpleasant feelings. Image courtesy of Wix

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What Is "Bad" Credit?


What determines "bad" credit? Technically, it is an arbitrary one. It is up to each lender to make that determination. In any event, there are "ranges" FICO and VantageScore use that provide a close approximation as to whether a consumer may be classified as having poor, fair, good, or excellent credit.


For example, FICO classifies "Poor" as 300 to 579; "Fair" as 580 to 669; "Good" as 670 to 739; "Very Good" as 740 to 799; and "Exceptional" as 800 to 850. With this model in mind, any score below 580 would be considered bad. To learn more about your credit score, see the following post: Do You Want a Good Credit Score?


Interestingly, some lenders are willing to lend more liberally and extend credit to consumers who have a lower credit score whereas other lenders are more conservative, and may deny credit to a consumer who would otherwise have been approved by one of its competitors. The bottom line—your miles may vary.


What Impact Does "Bad" Credit Have On You?


Does it really matter if you have bad credit? Granted, if you are independently wealthy, it may not have much impact on you. However, most of us do not fit that category.


Credit reports and credit scores are very important—not only when applying for credit cards—but for just about anything requiring a credit check. This includes applying for a mortgage, an auto loan, cellular service, and even with a utility provider. Some insurance companies may use your credit score to help determine your auto, home, and life insurance premiums. Some employers may review your credit report before making a hire, or promoting a current employee. A strong credit score will give a consumer more access to competitively priced credit and better options that would otherwise be unavailable to them.


A survey of 5,000 United States adults conducted by Credit Sesame revealed the tangible consequences of having a poor credit score. 50.3% said they were unable to buy a home; 28.1% indicated they could not rent the apartment they wanted; 49.5% stated they were unable to qualify for an automobile loan.


And then there were the emotional aspects of having a bad credit score. 48.8% said they felt worried; 45.9% felt ashamed; 29.8% stated they were angry, and 15.9% indicated they were confused.


What Steps Can I Take To Improve My Credit?


From time to time, we all experience an unexpected event that takes us by surprise: Losing our job; a physical or mental health setback; automobile or home repairs, etc. Some individuals are resilient whereas others may have a more difficult time dealing with the matter.


Nevertheless, it can create a situation that spirals out of control—late payments, missed payments, eviction, foreclosure, etc. This leads to a nose-dive of your credit score and "predatory" lenders as the only financial institutions who will do business with you.


What can you do if you currently find yourself in this situation?


Let's talk about three steps you can take:

  1. Understand your current financial situation.

  2. Pay off your higher-interest creditors as fast as you can.

  3. Open a credit card to demonstrate your creditworthiness.

Understand your current financial situation. This involves a knowledge of your take-home pay, monthly expenses, and interest rates on your outstanding balances.


"Taking one step toward improving your credit is one less step to reach your goal."

It can be rather "scary" to learn how much interest some creditors may be charging you over the course of many months or years. Taking a little extra time to figure this out may give you extra motivation to pay these debts off sooner! It is important to use a Debt Repayment Calculator or Loan Calculator to get the data you need.


Using a spreadsheet is another way to understand and track your income and expenses in an organized manner. Using Microsoft Excel or Google Sheets has proved to be effective for many.


Pay off your higher-interest creditors as fast as you can. It is no secret that a higher interest rate means you will pay more money on the amount of money that you borrowed. For example, let's pretend that you borrowed $10,000 at an annual percentage rate of 10%. Paying $100 per month will result in you paying $11,591 in interest. However, paying $300 per month will result in paying $1,764 in interest. By paying an extra $200 per month you will have saved close to $10,000 in interest over the life of the loan!


You can use our Debt Repayment Calculator or Loan Calculator to see how much you can save by increasing your monthly payment amount. Not only will you have the satisfaction of saving money, but your debt will be paid off sooner.


Open a credit card to demonstrate your creditworthiness. Open a credit card if I have bad credit? Say What? Granted, using a credit card irresponsibly is never a good idea. However, in order to build your credit, you need to demonstrate to potential lenders your ability to make all of your payments on time. You'll be able to build credit, practice good credit card habits, and prove your creditworthiness over time. However, you may need to settle for a "less-than-average" credit card.


If you are looking to build your credit, an unsecured credit card for you may be the Reflex Mastercard®. Consider this card a "gateway" to getting approved for other credit cards in the future that offer rewards and other benefits. You can apply for this card here!


If your credit score is below 580, you may need to apply for a secured credit card. This is a type of credit card that requires a cash deposit as collateral. One excellent secured credit card to consider is the Platinum Secured from Capital One. A minimum deposit of $49, $99 or $200 is required and it provides the path to an unsecured credit card. You can apply for this card here!


It is important to remember that you are only using these "less-than-average" credit cards for the sole purpose of improving your credit score. They are a tool—or a means to an end. In fact, over time, you may qualify for credit card products that earn rewards. The rewards earned from some of these credit cards can easily translate into hundreds—even thousands of extra dollars in your wallet every year! Learn more about this in the following post: Credit Card Miles & Points—The Secret You Didn't Know About!


Benefits of Being Approved a Good Credit Card


It is easy to adopt a negative view toward credit cards—especially when your experience has been bad. However, the reality is, when we don't use a credit card that earns rewards, we actually lose money. To learn why this is so, see the following post: Why You Lose Money When Using a Debit Card.


Credit cards can actually help offset inflation. Learn more about this in the following post: Five Easy Ways to Combat Inflation Using Your Credit Card & More!


Credit cards can also lower your prescription costs. Learn more about this in the following post: Using Your Credit Card and GoodRx to Lower Your Prescription Costs.


Credit cards can also help you save money on your cell phone bills! Learn more about this in the following post: How Your Cell Phone Provider Is Taking Your Miles & Points—and How to Get Them Back!


Perhaps one of my favorite ways to use my credit card is to win points with my spouse—and get out of the proverbial dog house. Learn more about this in the following post: How to Win Points—With Your Spouse and Your Credit Card!


Getting Started With Miles, Points, and Award Travel


Entering the arena of credit card rewards, reward stacking, and other topics related to credit card use can be confusing—even overwhelming. At AwardYourMiles, we have created proprietary tools that you may use for free. Visit awardyourmiles.com/tools to learn more about how these tools may be of benefit to you.


One tool that is extremely useful is our Credit Card Selector Calculator. It uses an algorithm to provide you with the first-year value of all our credit cards contained within our database based on your spending habits. This allows you to select the best credit card!


Of course, you can always seek out a Credit Card Miles & Points Consultant. They will take the time to walk you through the various steps associated with earning miles & points and redeeming those miles & points for award travel. The knowledge and experience you gain working with a Credit Card Miles & Points Consultant will put you on a path where you will learn how credit cards can help you stretch your dollar farther!


The Bottom Line


Having bad credit is a situation that can be reversed—by taking the right steps. With time, effort, and practice, you can obtain a good credit score! Learn from others who have great credit. If you take the aforementioned steps seriously, you will be on your way to having good credit!


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