Contrary to popular belief, having a bad credit rating is not a life sentence. You can take measures to fix your credit. Millions of people have succeeded in taking back control of their finances-and so can you. Here are tips for how to fix your credit:
- Know the Score (Your FICO Score, That Is)
First, let's take a quick look at how lenders see you and then we'll offer bad credit help. They aren't concerned with your financial potential. Lenders want to see financial stability and responsibility. Have you been lacking these qualities in the past? It shows on your FICO credit score. And the lower your score, the riskier you look to lenders.
Here's the low-down on the scoring structure:
- 35% of your FICO score is determined by how dutifully you pay the bills
- 30% of the score is determined by your debt-to-credit ratio
- 15% is determined by the length of your credit history
- 10% relates to the number of your loan and credit card applications in-process
- 10% of the score is decided by the management of your existing loans and credit cards
The highest score possible is 850 points and the lowest is 300. Someone with a score that is between 720 and 850 has attained the financial equivalent of superstar status. A high score almost always means you'll be taking advantage of faster loan approvals and lower interest rates from lenders.
A person with a low FICO credit score (below 600) is deemed by lenders as high-risk. A person in this scenario can expect to pay a very high loan interest rate. That if, if a loan approval happens at all.
2. The King of Four-Letter Words: Debt
Increasing your credit score is simple: Pay your bills on time, keep your debt lower than your line of credit, and don't go hog-wild with store credit cards. You have to want to repair bad credit. Prepare to be patient while your credit rating eases back up the scoring chart. Depending on the amount of debt clean-up you need, increasing your credit score enough to make a positive difference could take as little as six months or as long as several years. Don't fall for scam artists who claim they can fix your credit 'instantly.' They will not provide you with the credit help you need. Their plans are not legit, and you could end up in jail.
3. Keeping Out of Trouble (Again)
Fixing your credit (and keeping it good shape) takes diligence on your part. Always be prepared for the worst. If you aren't financially ready when disaster strikes, it could mean tarnishing your credit again. Worst case scenario: filing for bankruptcy. This is why fixing credit needs to happen now.
Ever hear the expression 'pay yourself first'? It's good advice. Start doing it now. Sound impossible? Banish that thought. Setting aside money for when life throws you a curve ball is important. If you don't plan ahead for the possibility of medical bills, car repairs, and other 'unexpected' expenses, then you risk tarnishing your credit. Live more frugally, get a second job, get rid of poor investments-whatever it takes to build up your nest egg.
Financial organization is also a must in order to keep credit problems at bay. Set up a household budget and maintain it regularly. Whether you use a wall calendar to jot down the due dates of bills or set up a detailed budget system on your computer, make sure the plan works for you. A complicated, lengthy plan is a surefire way to let the budget slide.
Know your limits. Are credit cards your weakness? If you can't trust yourself to shop wisely with a credit card in your wallet, then bring only a set amount of cash. Got a habit of spending your 'emergency' money on frivolous items, such as fast food or magazines? Instead, consider keeping the money in your bank account. Really, how many 'emergencies' have you had where you need money right that second? A main factor in credit repair is realizing your foolish expenditures.
Credit management is ultimately up to you. Fixing bad credit is possible if you are diligent in doing so. Being honest and proactive about your financial situation are the keys to fixing your credit.