How to Clear Bad Credit for a Very Low Income Person

How to Clear Bad Credit for a Very Low Income Person
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It's rare for a young adult to already have very bad credit issues, but in some extreme situations, it can happen. When a person has very little income, overcoming poor credit can be tough. Just because someone's made a few unwise choices or bad experiences doesn't mean he should pay for it for the rest of his life. Even with little to no income, there are several steps that a person with bad credit can take to help alleviate the problem.

Pay Bills On Time

It may seem a minor point, but paying bills on time can make a difference when it comes to a person's credit score. A person with very little money has to choose to pay the bills on time rather than buy a luxury or entertainment item. This is especially important for someone struggling with bad credit because in those situations, even the smallest mistake, such as forgetting to pay a bill one month, can set a credit score back even more.

Checking Credit Reports

Most people don't even have a credit history until they're at least 18 and old enough to have a credit card, or have parents who added them as authorized users to their credit cards so they can build credit. A person who does have a credit history can request a free credit report from each of the three major credit reporting agencies once every 12 months, thanks to the Fair Credit Reporting Act. The three agencies are Equifax, Experian and TransUnion. When reviewing a credit report, it's important to check every item to make sure it's accurate. Sometimes a bad credit score is the result of a mistake. Mistakes can be fixed if reported to the credit agency.

Decrease Credit Card Balances

Although it's rare for a teen or young adult to have bad credit, if it does occur it may be due to large credit card balances. A credit card balance should be no more than 20 percent of the card's available credit in order to keep a good credit score, according to MSN Money. Someone with little income can improve his credit score by slowly paying off the debt. This will require budgeting and setting aside a little bit of money every month.

Tips for Building Credit

Getting a credit card can also help improve a bad credit score. To get a card, a person must be at least 18 years old or have authorization from his parents. A secured card is an option some people use to build credit, because it has a fixed credit limit based to the amount of money put in a savings accounted linked to it. Using a secured credit card a little every month, and paying it off completely each month, can slowly raise a bad credit score.

Deal With Defaulted Loans

Defaulted student loans can ruin credit. Although this isn't a problem that teens face, they should be aware of the issue so they can avoid ruining their credit after they graduate from college by not paying on student loans. Recent college graduates might be tempted to blow off their loan payments altogether if their new jobs don't pay much. A responsible option is to call the student loan provider and ask for lower payments or payments based on income. If a loan has already defaulted, the collections agency can offer options for either rehabilitating the loan or consolidating several student loans. Both come with a fee, but can work out to be better than letting a defaulted loan destroy credit even more.