Anyone can find themselves in the unenviable position of having a bad credit rating. Individual circumstances determine the cause behind the financial hardship, and whatever the reason, the result is the same. A bad credit rating exists, and it needs to get better. Improving a credit score need not be a stressful process, but it may take a little more time than most would like. A poor credit rating did not happen overnight, and one cannot expect to repair credit any quicker than it was destroyed. With practice, patience and perseverance one will be able to repair their bad credit and be on the way to financial independence.
5 Important Steps to Improving Your Credit
First - Check your credit report. If you have not already done so, request a free copy of your credit report from all three of the major credit reporting agencies. Experian, TransUnion and Equifax all track credit history and create credit reports from that history. This information is provided to lenders, potential employers and landlords, as well as the individual upon request. The Fair Credit Reporting Act provides that every person may obtain a copy of their credit report one time each year. There is no charge for the report. However, there is a charge for obtaining the credit score number in most instances. Checking your credit report allows you the opportunity to see if there are any errors and correct them as quickly as possible.
Second - Stop using credit cards now. If you do not have cash to pay for a purchase, then it must wait until you do. Reduce your overall spending to have more available cash for necessary purchases. Look for creative ways to cut back on spending. Ride the bus to work one day each week, pack a lunch two or three times weekly instead of eating downtown, and forego the Friday night dinner and a movie for a movie rental and takeout pizza at home. These are small ways to find more money in the wallet.
Third - Get caught up on all your payments. If you are behind in any payments, then you first need to catch up to current on all of them. With each month you pay your bills on time, the better the chance your FICO score will rise. How much your old debt problems affect your credit score lessens over time. Allow the fact that your late payments will not hurt your credit score forever help to keep you on track with keeping your payments up to date. Given a little time your improved responsible credit management will become obvious and will show that you have the ability to manage your credit responsibly.
Fourth - Make a plan and set goals to reduce debt. Make a list of each creditor, the amount owed and the cost of credit. Begin by paying more every month to the creditor charging the most interest. When that debt is eliminated, apply the entire amount you were paying to that creditor to the next highest costing debt (in addition to the amount you were already paying them.) It's like putting pennies in a jar, they keep adding up until one day you have a full jar. Only in this case, it keeps reducing the debt until one day you are debt free. Now how satisfying is that?
Fifth - Create calendar reminders for all your payments. It would be extremely frustrating to make a plan to reduce debt and then forget to issue the payment and cause a late payment penalty.
Credit Repair Tips That Stand the Test of Time
Avoid canceling existing cards as they are paid off. Having some available credit is important for several reasons, including allowing the credit bureaus a chance to see that you are managing your debt and can handle having open credit. Also, do not fall into a trap of opening new cards simply for appearance sake. Too many cards will damage the FICO score. Also, the credit reporting agencies track the amount of times new credit is requested. Each time a person applies for credit it effectively lowers the credit score. So, hold the status quo on the amount of cards you have and make a concerted effort to reduce the debt as quickly as possible.
On the other hand, if someone is having trouble making ends meet, even though it may be difficult, they should contact their creditors and let them know of their financial difficulties. Most lenders will use whatever options they have available to them to help someone who is trying to ultimately pay their bills. Credit card companies may be the exception to that theory as they do not have much latitude when seeking a payment arrangement, or at least that is what they will tell you. It is always best to let a creditor know what is happening with your delinquent payments rather than letting them proceed with collection practices.
Keep in mind that slow and steady wins the race. Small amounts add up to significant debt reduction. Working hard to improve credit score rankings is very satisfying. When someone has put effort into debt reduction and their credit score improves, it will make the whole lengthy process all worthwhile. In the meantime, if a person is actively saving a little money each month while continuing to pay down debt, they will have more readily available cash to make purchases that were once only available by using credit.
One more thing, if a person is fortunate enough to already have a high credit score, such as 700 or above, there is not much listed that will improve the score by much, but knowing what to watch out for could keep from having that score go lower. Those with credit scores over 760 are already receiving the perks that come with having responsible credit practices.