Maintaining good credit lets you take advantage of lower interest rates and rapid access to funds when a need arises. If you don’t have an excellent credit rating, you’ll end up with higher rates and have difficulty obtaining new credit. This can be particularly harmful if you wish to buy a home or start a business. The information provided here is to assist in safeguarding and improving your credit.
Don’t Increase Your Debt
If you don’t have the cash for it, don’t buy it. Simple.
Identify High-Cost Debt
Yes, some debts are more expensive than others due to high interest rates. Credit cards are typically the worst offenders. Here’s how to deal with them.
• Don’t use them. Store them in a drawer and access them only in an absolute emergency.
• Identify the card with the highest interest and pay as much extra every month as you can while continuing to pay minimums on the others. When you pay that one off, begin paying off the card with the next highest interest rate.
• Don’t close them you current cards (this can hurt your credit rating) and don’t open any new ones.
• Pay on time, every time. A single late payment can lower your FICO score.
• Go over your credit-card statements with a fine-tooth comb to make sure there are no line items you don’t need and could cancel.
• Call your credit card companies and politely ask if they will lower your interest rates. Sometimes it works, and sometimes it doesn’t, but you have nothing to lose.
You can avoid becoming a victim of identity theft by minimizing the amount of information available for a thief steal. Follow these guidelines to avoid being victimized. If you have already become a victim, see the Tips for Victims below.
Tips for Avoiding Identity Theft
– The IRS does not initiate communication with taxpayers through e-mail, so be wary of emails you receive asking for personal information.
– Never carry your Social Security Card, extra credit cards, or passport unless necessary.
– Memorize your Social Security Number and any personal ID numbers and passwords.
• When creating a password or PIN, don’t use any part of your SSN, ID number, or birthdate.
– Always sign your credit cards.
• Never throw away intact credit card receipts in a public trash container.
– Never loan out your credit card.
• Report lost or stolen credit cards immediately.
– Do not share personal identity information (particularly SSN or credit card numbers) over the phone unless you initiated the call and are certain of who you’re talking to.
– Be on your guard again phone or mail solicitations disguised as promotions which offer prizes or bargains which require you to share your SSN or credit card numbers.
– Don’t leave mail out for pickup. Promptly remove mail from your mailbox after delivery and have a locked mailbox if possible.
– Shred all documents (especially pre-approved offers of credit) with your name or ID numbers on them.
– Follow up on any suspicious credit card charges or withdrawals on your monthly statements.
– Order credit reports from the three major credit bureaus at least once a year and thoroughly check to ensure all information is correct.
Tips for Victims of Identity Theft
Call your local police and the nearest U.S. Postal Inspection Service to report the crime.
– Contact all creditors by phone and in writing to inform them of the problem.
– Contact the fraud departments of the three major credit bureaus and ask to have your credit file flagged with a fraud alert. This will require creditors to call you before opening new accounts in your name.
– Contact the state office of the Department of Motor Vehicles to find out if another driver’s license was issued in your name.
– Keep record of all your contacts with creditors and authorities and make copies of all documents.
Improving Your Credit Score
There are host of important numbers in your financial world, but few are as critical as your credit score. Your FICO score, ranging from 0-850, affects your ability to buy a house or car, get a loan, qualify for a credit card, or even get a job.
FICO scores are based on your credit reports, which in turn are based on four elements:
• Personal information
• Credit history
• Credit report inquiries
• Public records
There are three agencies that track credit scores: Equifax, Experian, and TransUnion. You are entitled to a free report once every 12 months; www.annualcreditreport.com is a great place to obtain this report. In the report, you can:
• See who has made inquiries about your credit
• Check it for errors
• Find out if you’re an identity theft victim
• Determine your chances of getting a loan
A bad credit report doesn’t have to stick with you forever. In fact, even bankruptcies usually drop off your report after seven years. And the news is that no matter what your score is, you can always improve it. Implement the actions below and you’ll increase your chances of eventually making it into that top score range.
• If there are any mistakes on your report, inform the appropriate credit agency immediately. Do this in writing, and document it well.
• Pay all your bills on time. A single late payment on a credit card can lower your credit score.
• Budget for credit card payments the same way you budget for mortgage and food.
• Be careful not to allow balances on credit cards and other revolving debts get too high, as having a high credit debt-credit limit ratio can lower your credit score.
• Don’t close your current accounts and don’t open new ones, as both these actions can lower your score.
• Put as much money toward your high-interest rate cards while paying minimums on the rest. When you’ve paid that card off, apply the same process on the card with the next-highest rate. Whenever you can pay more on your card, pay more.
• Try to keep an emergency fund so that you are always able to pay your minimums.
• Politely ask your credit card issuer for a lower rate. It’s worth a try, even if they say no.
• Use your credit cards rarely and judiciously to demonstrate that you can borrow money and pay it back responsibly. The credit bureau can’t gauge your ability to pay a debt back if you never borrow.
• Maintaining a stable job and residence goes a long way towards demonstrating stability to lenders.
• Religiously avoid collection agencies and judgments against you. Check and check again to make sure you have satisfied liens and other judgments that may be over you.
When you’re credit-worthy again, shop for your next credit card as you would shop for groceries and clothing, searching for the best deal. www.bankrate.com is a great resource for finding the best deals on credit cards and other financial products such as mortgages and other loans.
Improving your credit score time and sacrifice, but it’s well worth it. The higher your FICO score, the better your chance of obtaining credit and loans with low interest rates. Just keep on track and you’ll get there eventually.
Know Where You Are
Assess the depth of your debt. Write it down, whether on paper or using a computer program, and include every financial situation where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, any outstanding tax liens, student loans, and payments for items through a retail store. Record the day the debt was incurred and when (if possible) it will end, the interest rate you’re paying, and what your payments typically are.
Add it all up, as painful as it might be. Try not to be discouraged. The plan is to break the amount down into manageable chunks and deal with them one at a time.
Make Saving a Priority
Lots of little choices to cut back on spending can really add up. Substitute free family activities for high-cost ones. Sell high-value items that you can live without. Cancel subscriptions that you don’t need, like cable TV or monthly magazines. If you take a second job, earmark that income for paying down debt.
Paying Off Debt Wisely
Most people are in debt, between mortgages, car loans, credit cards, student loans, and it isn’t necessarily detrimental. While becoming debt-free should always be your goal, you should focus on the management of it, not the presence of it. In all likelihood, you’ll have some measure of debt for most of your life. If you treat it wisely, it won’t feel so much like a burden.
How can you pay off debt the smart way, while at the same time saving money to further reduce your debt?
Consider investing in a Sam’s or Costco membership. Switch brands if you have to. Use coupons religiously. Apply your savings to paying down debt.
It’s not easy, but taking each of these steps small steps can help you finally make a dent in that debt.
Solutions for a Personal Credit Crisis
A personal credit crisis can happen in a variety of ways. Losing your job. Having an expensive medical emergency. Finding yourself with three children in college. There are a number of ways to get through it, but it will take perseverance, and you will have to make some sacrifices. Here are some suggestions.
• Be proactive, not reactive. Start working on the problem as soon as you see it on the horizon, not when you’re afraid to answer the phone or open the mail because of bill collectors.
• Thoroughly assess your situation. Record your income and regular expenses and liabilities.
• Build a realistic budget that you can live with.
• Record every penny you spend and regularly compare it with your budget.
• Identify which payments have to be paid in full, such as mortgage, rent, utility bills, and insurance payments.
• Contact creditors and try to negotiate short-term payment reductions.
• Cut back on expenses where possible. Can you downgrade your cable plan? Can you spend less on lattes? Can you stay out of restaurants for a while? Can you shop at Goodwill instead of a department store? Lots of little cut-backs can really add up.
• Do not increase your debt. Put your credit cards in a drawer and don’t use them unless it’s an emergency. If you don’t have the cash for it, don’t buy it.
• Consider a credit card balance transfer, but only if you’re certain you can pay off the balance in the stated time period.