Five Steps to Turning your Credit Rating Around
Easy Tips to Get you Back on the Right Track.
Credit card debt is like a slow moving epidemic. Millions of Americans suffer from it and more and more succumb to it daily. It creeps in and takes down unsuspecting consumers young and old alike. When in debt, it may seem like you have no options, and no way out. You start to break down and you consider filing for bankruptcy, a move that will hurt you for many years to come. But there is hope for those lost in the plastic sea. There are measures you can take to defeat this giant and rise like a phoenix from the ashes. Though you may seem doomed by your spending habits or an unexpected situation like a divorce, you can turn it all around by following these five steps. It may take a long time to actually see results, and it may put a strain on your lifestyle, but good credit is an important thing to have in our society. If you buy into this plan and stick to it, your debt will become manageable and will eventually be erased. The burden of credit card debt can be a heavy one, but when taken on with a headstrong attitude, it can be conquered.
Step One: Clean it up
Ok, you’ve come to terms with the fact that you’re in over your head in credit card debt. Now it’s time to take action. The first thing you should do is comb your credit reports for any errors. Make sure that there aren’t any things that should not be there, like late payments and finance charges that you know you have paid off. Look at any collection notices you may have and ensure that the report does not list both the original late fee and the fee from the collection agency. If you want to remove a negative item, you can sometimes call your creditor and offer a payment for its removal. A single late payment can often be cleared from your record if you have been with that particular creditor for a long time. If you are going to pay off a fee that has gone to collections, get the creditor to agree in writing that you are doing this so it can come off your report. Also, check the credit lines that show up on your credit report. Sometimes creditors will show your credit line as lower than it actually is so that your credit looks bad to other credit card companies. This can hurt your credit score, and if you see it happening, call your creditor and tell them about it. Remember that only have the right to dispute inaccuracies on your report, and not things that you actually did to get into debt.
Step Two: Pay Wisely
If you have debt on several different credit cards, choose the one with the highest interest rate and start paying it off immediately. By doing this and paying the minimum amounts on your other cards, you can slowly whittle away at your debt. Paying down the card that has the highest interest rate works to your advantage because it will build up interest costs quicker than your other ones. Once that card is paid off, dedicate the amount you were paying in addition to the minimum balance to the card with the next highest interest rate. Practice this game plan until all of your cards are paid off. If you choose not to clear your debt this way, at least try get all of your debt down to 30% or less of your credit line for each card. While your debt will still be stretched over your cards, 30% is a range where a lot of creditors are comfortable with and this will help to raise your credit score.
Step Three: Be Smart About it
You are only going to find yourself falling further and further into debt if you can’t afford to pay more than your minimum monthly balances. Sure, you are paying what is minimally required for each card, but finance charges are still being applied and they will ensure that you never pay off your balance in full. One thing you can do about this is to single out the cards that you no longer want to use and cut them up. Keeping the accounts open and continuing to pay the cards off after cutting them up will guarantee that you will never use them again. Another good thing to do is to set a budget for yourself. Cut unnecessary spending and don’t miss any payments that will incur late fees. Allocate the extra money that you were needlessly wasting on things that you do not need and put it towards your credit card payments. Every little bit will count and you might have to change the way you live for a little while, but it will help in the long run once your credit is turned around.
Step Four: Don’t be Afraid to Get Help
Professional help with credit card debt exists for those who do not feel they can handle it by themselves. There are companies that will help you sort out your debt if you can no longer make your regular payments. These companies will work on your behalf to try to get your interest rates lowered so that your debt becomes manageable. You can find agencies that will do this for you for free, but most of the time you will have to pay up front for their services. Many people do not know this, but you can call up your credit card companies and ask for lower interest rates on your own. Some creditors will lower them for you and some will not, but it is worth it to call and find out. If you successfully get your rates lowered, you can pay off your debt more quickly without having to pay more money each month. Something else you can try to do is to get someone to cosign with you on a small loan. Take an installment loan out on a new car or a major appliance if you can afford and obtain one. By acquiring a loan like this and paying it off on time, your credit will go up. Just remember that the person you cosigned with will be affected if you miss payments on the loan.
Step Five: Try a New Card
If you cannot get your rates lowered, look into getting a prepaid card or a secured card. These credit cards allow you to put a set amount on them, which in turn will get you a line of credit from a creditor. They work like regular credit cards and will give you the opportunity to fix your credit in a reasonable manor. Secured cards often have higher fees associated with them but they also have more flexible acceptance rates. Most of the time these cards will report to at least one credit bureau on a regular basis and by making small purchases and paying them off, your credit score will go up. If your credit is really bad, you might want to avoid getting a new card because every time you apply it is reported. This may hurt your credit score even more because cards that are less than a year old tend to reflect negatively on your credit report.
Whether your debt came from out of control spending, an unfortunate incident like being fired or getting divorced, or perhaps just plain ignorance, it’s not going to go away on its own. Like an infected cut, it has to be cleaned out and treated with care. Go through your credit report and make sure there are no inaccuracies, no matter how small they are. One small mistake can send your credit score into a tailspin that may be even harder to recover from than where you first started. If you have debt spread out over multiple cards, get into the habit of paying more on the card with the highest interest rate, while at the same time paying the minimum balance on your other cards. Once all your cards are paid off, make sure you always pay the balance in full from then on.
Planning out a budget for yourself so that you can put more money towards your credit card debt is a great way to teach yourself discipline while paying off your debt. When the situation becomes too overwhelming to handle by yourself, get in contact with a consumer credit agency. They will help you sort out your debt and show you the right way to do things. Also consider taking on a new card that is designed for people with poor credit history. Secured cards will regularly report to credit card bureaus and if you pay your balance in full and make your payments on time, this will reflect more quickly on your credit score.
While these five steps are not guaranteed to help wipe out your debt and get your credit rating back into good standing, they will at least help send you in the right direction. Good credit is a very important thing to have in the world today. Without it you may have trouble securing a loan for a house or a car, among other things. Falling into poor credit is easy, but digging your way out is not. If you want to have excellent credit, follow these five steps faithfully and you will see results.
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