5 Ways to Fix Your Credit

Last time, I told you that debt is the #1 killer to financial well-being. You can’t be financially independent if you owe someone else money. There is a difference between good and bad debt. Good debt improves your life or standard of living; things like obtaining an education or acquiring a special skill.) Bad debt adds nothing of value. It usually comes in the form of some sort of self-gratification. Do you really need that 10th pair of shoes that costs $300? Credit cards are the biggest culprit since they give us easy access to instant gratification.

Many of us overextend our spending, for whatever reason, and feel like we can’t get our heads above water when it comes to managing our debt. Fixing your credit is like trying to lose weight. It takes time and there are no quick fixes. Once you do fix it, you must stay on top of it or else you can end up worse than you were before. Just like your weight!

Here are some ways to get your credit back in good standing.

1. Consolidate Your Credit Cards (One, or two at the most). Having several credit cards with low balances is not a good thing. Lenders view this as access to credit, which makes you riskier in their eyes. It lowers your credit score, resulting in a higher interest rate

2. Get a Secured Credit Card. These work like debit cards with funds you prepay for spending. It’s an effective way of rebuilding your credit profile with little risk

3. Only Use a Fraction of Your Available Credit. Obviously, a large amount of debt leads to a riskier profile to a potential lender. Access to credit leads to a riskier profile as well. Reduce your access to available credit and see your credit score rise!

4. Use On-line Tools. There are many on-line tools to track spending, auto-pay bills, and set up payment reminders. Most credit card and utility companies have on-line features. These should all help you pay your bills on time and improve your credit score. In addition, they can help prevent/detect identity theft.

5. Credit-Counseling Agencies: If you are having trouble-getting things under control, click here for a list of reputable agencies in your area. Debt Reduction Services can also help you lower your interest rates and reduce your monthly payments, ultimately eliminating your debt.

Finally, if you are out of options and must file for bankruptcy, file Chapter 13. You can set up a payment plan with creditors without the negative information on your file for 10 years. And you get to keep your home!

Let me know what other finance topics you’d like to see discussed!

See you next time