If you’ve made late payments on your debt or didn’t pay at least the minimum balance you probably are aware that this kind of behavior hurts your credit rating/score but did you know that using over 50% of your total credit or maxing it out also hurts it too? All these credit mistakes have an adverse reaction on your credit history. While these actions do impact your credit rating and can affect getting a good interest rate or loan, you can salvage or rebuild your credit with a little time. Here are some tips to get your started.
- Check your credit score
The first thing you need to do is check your rating. Some people are afraid that if they check their score, creditors will have their updated information and start calling and sending nasty letters for collection. While that may be true if you are serious about dealing with your debt or rebuilding your credit, this is definitely where you need to start. You are entitled to receive a free copy once a year from both Equifax and TransUnion. Each bureau may have different information so be sure to check them both.
- Make Arrangements to Pay your Creditors
Payment history is the largest factor affecting your credit rating and if you have been behind or missing payments, you must get them up to date. You can do this by calling your creditors directly and negotiating payment arrangements. Make sure if you do negotiate new terms or minimum payments that the payments actually fit your budget and that you can make them and on time. If you are uncomfortable dealing with your creditors directly you can seek a credit specialist like a Trustee in Bankruptcy.
- Get a new secured Credit card.
A secured credit card is one that is secured with a cash deposit. This deposit assures creditors they will get paid and can range from $100 – $1000. Even a $100 secure credit card can help you rebuild your credit as you will be using it like a regular credit card. You will be paying it off each month with money separate from your initial deposit. The deposit is there only if you can’t make your payments, which of course you can! Choose an amount that works for you and that you know you can use and pay off in full every month. You can put as little as $20 on it just be sure to pay it off. This is the start of your new credit history and proper payments are the key.
- Adopt New and Improved Financial Habits
By checking your credit score and making arrangements to pay your creditors you are already developing new spending and borrowing habits. You have probably realized by now that to live a financially stress free life you need to live within your means. This means making a budget and sticking to it. Credit is not a way to stretch your income; it has to be paid off, with interest. If you can’t afford it with cash on hand, you don’t buy it. You must learn to spend within your budget. It is easier than it sounds. Once you prepare a monthly budget and you can actually see exactly what you are spending your money on, it is easy to cut a few things out, pay off your debts and stay within your budget. You just need to take a cold hard look at your spending habits and decide what is really important.
- Set up Automatic Payments
The best way to rebuild your credit quickly is to set up automatic payments with your utility bills. These are always the first creditors you make arrangements with because who can live without Hydro or a telephone? Once you are in good standing with your Utility companies, set up the payments to come directly from your bank. Always choose the payment date(s) to coincide with your larger paycheque for example: Pay your rent or mortgage for the 1st and your bills on the 15th that way you always have a little money left over on both paydays.
Follow these tips and you will be enjoying your new and improved, rebuilt credit in no time. Just be sure to use your new credit wisely and remember where you got into trouble in the first place and why and avoid those situations.