Bad Credit 101

Checking your credit report is very essential because your credit score is an important factor that most lending businesses and banks consider when you apply for a loan.

Whether the loan is for your mortgage or a new car, creditors and banks check your credit score to determine whether you are eligible and what interest rate is appropriate.

Also, sometimes when you apply for a job, employers may check your credit score. It can reverberate throughout your financial life, so it is crucial that you always have a stellar credit record.

If you have bad credit because you were hit badly in the past by the unstable economy, lost your job or simply do not have the proper finances to pay for your monthly expenses, taking measures to repair your credit is crucial, especially if you plan to take out a loan.

One thing you should remember is that rebuilding your credit is not something that can happen overnight. Although there are credit repair companies that promise to shake heaven and earth to fix your credit, improving your score is your responsibility and it requires your full attention and time.

Here are some tips that may help you improve your credit score.

Always Pay Your Bills on Time

Keep in mind that delinquent payments on monthly expenses like loan payments and credit card bills are typically reported on your credit report and would typical negatively impact your credit report. Missing your payment, even just a few days late, may have a hugely negative impact on your credit score.

If you have missed payments, you should make sure to stay current with your bills henceforth. Paying bills on time after having a bad payment history will likely help to increase your credit report.

Generally, if you keep paying your expenses on time, your poor credit performance will likely improve, since your current good payment patterns will reflect on your credit report.

Set Up a Monthly Payment Plan to Reduce Your Debts

If you are the forgetful type of borrower, one thing that will help you keep up with your payments is to set up an automatic pay schedule that will deduct your monthly payments automatically from your bank account.

Check your current invoices to know how much you owe your lenders and credit cards so that you can determine a monthly budget to pay them through the automatic payment method. This way, you will not have to worry about missing your payments or incurring late fees on your bills.

Furthermore, you can allot a bigger budget for your loans and credit card debts that have charged you with high interest rates and then set a minimum payment budget for your other smaller accounts that you need to pay monthly.

Coming up with a payment plan that allows you to set aside some of your available budget to pay off your monthly debts can be helpful in cleaning up your credit reputation.

Keep Your Credit Card Balances Low

Aside from making timely payments, another way that typically helps improve your credit report is by keeping all of your balances low, especially when you use credit cards to make purchases.

Check all of your credit card bills and determine your credit utilization (which is basically the amount of your available credit limit) that you use in a month. Take note that your credit utilization is typically about 30 percent of your credit score.

Remember, the closer your balance is to your account’s credit limit, the less available credit you have, which typically negatively impacts your credit report.

A good technique to keep your credit card balances low is to follow the 10 percent rule, which means you pay down every balance that is beyond 10 percent of your credit limit.

Paying off revolving debt in a timely manner and not having a balance on your credit cards that nears your limit will also generally improve your credit report over time.

Check Your Report for Inaccuracies

As mentioned earlier, your credit score will resonate throughout your financial life, so it is crucial that you regularly check your credit report. Aside from checking your credit score, you also need to check your report for inaccuracies.

If you have not seen your credit report, you need to get a copy from any of the credit reporting agencies, like Trans Union, Equifax and Experian. Every borrower is entitled to have one free copy of his or her credit report each year. The three credit reporting bureaus get details from your lenders to build your credit report.

A vital reason to get a copy of your annual credit report is to make sure a lender or credit card company has inappropriately reported something. You might have been a good borrower, but a discrepancy on your report can ruin your credit score.

If you spot inaccuracies, you need to report them to the credit reporting bureaus immediately. Companies will then investigate the discrepancy within 30 days upon receipt of your notice of inaccuracy.

Your credit may be an obstacle to getting the financing support you need when seeking a home loan or an auto loan, as well as securing an ideal interest rate. However, if you take steps to repair your credit now and have the resolve to do so, you can revamp your financial outlook.

2 responses on “Bad Credit 101

  1. Leonel

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    Thanks a ton!