Though you may be tempted to take the scissors to your credit cards after finding out that your credit score is less than admirable, this dramatic action will do little to clean up bad credit woes.
However, it is imperative that you recognize that other drastic actions will be needed in order to clean up bad credit.
As long as you are willing to work hard and stay dedicated, you can improve your credit score steadily until you are back in good standing.
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Bad credit can be brought about in a variety of ways.
Mainly, your credit score is determined by:
- whether or not you pay all of your bills on time,
- how often you pay your bills on time as opposed to how often you pay them late,
- how long you have had a credit history,
- how much your credit card limits are,
- how long it has been since you last applied for credit, and
- what types of credit you have, such as credit cards or mortgages.
Each one of these factors is weighted differently, but they all play important roles in making up your credit score. This means that if you frequently pay your bills late, then your credit score will inevitably go down.
These days, having a score of 675 or lower is considered bad, and your poor credit could make it difficult to open a new credit card, mortgage, or receive a car or student loan without exorbitant interest rates.
Pay Your Bills On Time
One of the first things that you will need to do to clean up bad credit is to commit to paying your new bills on time. A large percentage of your credit score is determined by how responsible you are with paying your bills.
Even if you do always end up paying the full amount you owe, it is important that you do so in a timely manner. After all, due dates are in place for a reason. Set a reminder on your cell phone and calendar to pay your bills before they are due.
Paying the full balance each time will also ensure that you do not end up with unnecessary interest charges, helping you to save money. Even if you are working to pay off current debt, do not let that debt grow by regularly paying off your newer bills.
Spend Less Than You Make
Yet, you cannot get rid of your current debt if you do not cut back on your spending. Develop a realistic budget for yourself that will allow you to save money in order to steadily pay off your debt. Make an assessment of how much you spend and where most of your money is going.
Take note of where money is being wasted unnecessarily, such as on overly frequent coffee runs or luxury items. When you can see where your money is going, you are more likely to be able to grasp how much money you can save by adjusting your spending habits.
Negotiate with Creditors
Another way to make your debts more manageable is to contact your creditors directly to discuss how you can pay them back. Creditors are often willing to work with those having financial trouble, and may come up with a new payment plan that will be easier on those that owe money.
While you are paying off your existing debt, avoid closing inactive credit card accounts. Even if these cards are not being used, they are being factored into your credit score.
The more available credit you have, the higher your score will typically be. Also consider taking out another small loan with someone you trust so that you can begin paying these bills on time and building up you credit score that way.
Opening a secured credit card could also help you to rebuild your credit score. A secured card acts similarly to a debit card so that you cannot make charges on it unless you already have enough on the card to cover the expenses, thereby eliminating the chance for you to fall behind on your payments.
This card would show up as a credit card on your credit report, helping to build your credit score back up.
Whatever you decide to do, remember that it’s possible to clean up bad credit; it will just take time, effort, and patience. Do not become a victim of a credit fixing scam.
There are no miracle fixes for a poor credit score, so your best bet is to pay off what you owe and become more financially responsible in the future.