Easy Ways to Rebuild Your Credit
Have you had a life changing financial situation over the past couple of years? Have you been unemployed? Were you sick? Were you unable to make your payments on time? Or, even worse, were your unable to pay some of your bills at all?
Although it may not seem fair to you, when you have bad credit, you are essentially stuck. It’s not easy to get a credit card, or a loan, and even if you do, the interest rate will be so high that you’ll end up paying back far more than you borrowed in the first place. And, although most people don’t know it, your home and car insurance rates are also based on your credit score – I have known people who have done business with certain insurance companies for years, but the minute they hit a rough patch and it hits their credit score, the same insurance company will raise their rates as much as thirty to forty percent higher. To further add insult to injury, many employers are now checking credit scores, and your bad credit (from being unemployed) can actually keep you from getting certain jobs!
Unfortunately, these kinds of life events can and do affect your credit score. The good news, if there is any, is that you’re not alone. Millions of people in this country have been unemployed over the past few years, and as a result, creditors are much more inclined to work with you on catching up unpaid or underpaid bills, helping you to restore your credit, and even to extend credit once you’ve shown reasonable progress in cleaning up your credit.
If you think that your credit score has been negatively affected, the first thing to do is to get a copy of your credit report! Now, there are plenty of good companies out there that will not only give you a copy of your credit report, but will, for a small monthly fee, alert you to any changes in your credit score. And, while most of us immediately think we don’t need these kinds of alerts, or just want to stick our heads in the sand and hope it will all go away, the truth is, these companies and the services they offer are an extremely valuable tool as you work to restore your credit.
Once you have your credit report in hand, carefully review and compare the information to your actual financial situation. Do you recognize every account on the list? Are the accounts that are listed as delinquent or unpaid actually delinquent and unpaid? False and/or inaccurate information in your credit report can significantly lower your score, and the first thing you should do if you find such information is to immediately notify the different credit bureaus. They will, in turn, open an investigation and get back to you with the results.
Once you’ve verified your information, and corrected any inaccuracies, you can begin the process of improving your credit score. The easiest way to improve your credit score is simply to pay all of your bills on time, every time. Over a period of a few months to a few years, depending upon how low your score is and how many derogatory accounts you have, you will see improvement in your score simply by paying your bills on time. In addition, the greater the length of time that has passed since you’ve had a late payment, missed a payment, etc., the less important potential lenders will consider late payments, charge offs, and such.
Another way to improve your credit score is to pay down the debts with the highest debt to credit line ratio. You should never owe more than 2/3 of the balance on any one account – for example, if you have a credit card with a $300.00 limit, keep your balance under $200.00.
Once you’ve got that under control, then work on paying off the debts with the highest interest rates first. An easy way to do this is to make minimum payments on everything except the one with the highest rate. Put any extra money that you have toward that debt. Once you’ve paid that one off, then simply go to the next highest interest rate, and do the same thing, and then keep going down the line until you have all of your debts paid off. Believe it or not, this method not only works, but it will save you the most money in the long run.
Finally, you can contact the lenders and negotiate better interest rates on some types of debts. Remember, most lenders would rather receive at least some of their money than none at all, and because of this, they will usually work with you on your past due bills. You can either do this on your own, or consider using a credit counseling firm. However, if you do decide to use the services of a credit counselor, please use a reputable firm, read all of the fine print in the contract, and know up front what part of your monthly payment will go towards your debts and what part is their fee for service.
Of course, it goes without saying that during the time that you are trying to pay off your debts and improve your credit score, you should avoid opening any new lines of credit!