You Got Bad Credit, You’re Not Alone
You Can Reverse Bad Credit
Many people think that if they’ve got bad credit their financial future is doomed. Well they may pay more for goods and services with bad credit but their financial future is not doomed. If you’ve god bad credit all it takes to turn that bad credit around is to make a few simple changes to some of your financial habits. Agh, another set of steps to follow. Yes. Now these steps may not be easy but if you focus and take one step at a time, you can turn bad credit into good credit.
Working on your credit scores is well worth your time. Once you start to see the results of a good credit score you will be happy you made the effort. You waste so much money when you’ve got bad credit. You could waste thousands of dollars with a bad credit score because individuals with bad credit scores usually get charged more. Credit card companies charge higher interest rates; utility companies charge higher rates; auto and home loan interest rates are higher; landlords can charge higher rents and you could also be passed up on job opportunities because employers also judge you by your credit score.
It usually takes a few years and a few bad financial decisions to develop a bad credit score. So naturally it will take some time to turn a bad credit score around. Poor and sloppy financial habits creates a bad credit score so logically, good and solid financial habits will help turn a bad score into a good one. If you work the following steps with a bit of patience and focus you can change your financial habits and save yourself some money. Just remember, that patience with yourself is the key, do not expect immediate results. If you put too much pressure on yourself to change your credit score too quickly you may get frustrated and stop trying to change. Be patient.
The three most important activities that affect your credit score the most are your payment history, how much credit you use and your credit card balances. If you want to change bad credit into good credit you should start with those three activities. Let’s get started.
4 Steps To Turn It Around
Your 1st Step – Your Payment Activity (35%)
Paying late or skipping payments is bad news. Payment activity is at the top of the list when it comes to credit repair. The credit reporting agencies as well as credit card companies take payment history very seriously. So it is extremely important that you always stay current on your credit card payments. Never ever skip a payment. Be sure to at least make the minimum payment each and every month. If you can make more than the minimum amount due that’s great but at the very least, make the minimum, it looks better than skipping a payment. Thirty-five percent of your credit score is determined by your payment history.
If your payment activity needs a bit of improvement, your best bet is to automate. You can set it up with your bank and credit card company to have your payments automatically withdrawn every month to keep your current on your bill payments.
Your 2nd Step – Your Top Ratio (30%)
Credit reporting agencies are watching the ratio that really matters and so should you. The agencies look at the ratio between how much credit you use compared to your available credit line. This ratio is called the credit utilization ratio. It is the method the credit bureaus use to gauge how well you do with temptation. If you have a lot of credit available to you, do you use it all, do you max out your available credit or do you have some restraint. Your credit utilization ratio makes up 30% of your credit score, so be careful.
A good ratio to have is a low ratio. The best way to keep a low ratio is to always keep your credit use well below the credit limits offered.
Your 3rd Step – Your Balances (30%)
Your credit card balances are 30% of your credit score. When you carry high credit card balances you worry the credit card companies. The higher your credit card balances are (even if you make the minimum payments) the greater credit risk you appear to be. The financial logic is that the credit overload may eventually force you into a no-win situation. Which means that you may not be able to pay your bills. At which point you become a financial burden to the credit card companies. They want their money so they take high balances quite seriously.
The fastest, most direct way to work on your credit card balances is to pay off more than the minimum amount due. And then once your balances are at zero, pay with cash so that you do not build those ugly balances back up. When you pay with cash you will be surprised on how you will curb your spending. What you can afford to buy will be limited by the amount of cash you have on hand.
Your 4th Step – Your Spending Habits
This step is the most obvious step but not always the easiest one.
Every financial expert seems to have the perfect solution for cutting back on ones spending. But the only spending solution that will work for you is the one that you are comfortable with and will stick to. Regardless of how you approach your spending habits though one thing is for sure, before you change any habit, you have to want to change it. Before you can lose weight, you have to want to lose weight. Before you can start an exercise program, you have to want to exercise. Well the same is true with changing your spending habits because if you are not committed, you will slack off, make excuses and not be motivated to stick with it.
Changing ones spending habits is a matter of changing ones definition of a need and a want. The best way to spend less is to view everything you buy as either something you need or just want. It’s easy to blend the two together. Sometimes it’s very easy to convince ourselves that what we want is exactly what we need, when in reality we are just fooling ourselves. Analyze your needs and wants and you may be surprised on what you find.
The Rest Is Up To You
We got you started. You just read about 4 steps that will help you get started on reversing a bad credit score. Now that you know the steps needed to change a bad score into a good one you need to make the action plan and follow the steps to do it.