A
Strong Foundation
Making your payments on time and repaying your debts as promised exemplify good credit. When you have good credit, lenders are more confident that you will be willing and able to pay on your loan.
You may hear terms like "rebuilding," "repairing," or "re-establishing" credit. They all pertain to improving your credit health. It is important that you take action to improve an unhealthy credit situation. By acting now, you can avoid much larger problems such as bigger debts, loss of your assets (like your house!) and a bad credit report. There are several steps you can take to help you achieve the goal of rebuilding your credit:
• Develop a budget. Take control of your financial situation by assessing how much money you have and how much you spend.
• Reduce your expenses. Cut out any unnecessary spending like eating out and entertainment. Avoid impluse purchases.
• Contact your creditors. Try to work out a payment plan so your payments are manageable.
• Ask for help. See "Where to Go for Help" for more information.
Steps to maintaining good credit:
1) Try to pay more than the minimum due on your credit cards each month. For example, spending $1,000 on a card with an 18% interest rate and making minimum payments (roughly $20) takes you over seven years to pay off this debt! You end up spending $1,800 in the end.
2) Do not exceed your credit limit. This is a sign to potential lenders that you're in too much debt. If you have co-applicants or authorized users on your account, keep an open communication line on usage to avoid going over your credit limit.
3) Remember that credit cards are loans. Before you charge something, ask yourself if you'd normally take out a loan to buy it. Never borrow more than 20% of your annual income (after taxes). Additionally, your monthly payments should never exceed 10% of your monthly net income. In other words, don't buy what you cannot afford.
4) When managing your money, pay yourself first. Save money each payday for emergencies.
5) Apply only for the credit that you need. Each time you apply for credit, an inquiry appears on your credit report. Increased inquiries signal to potential lenders that you are using too much credit or that you have cash-flow problems.
6) Keep track of your bills. Get into the habit of scheduling time to pay bills each week to avoid late payments or over-due notices. Be sure to notify creditors when you move so your bills follow you and you can pay them on time. Grace periods are not an extension of your due date. Always mail your payment early so it arrives before your due date. Consider having your payments made electronically to ensure your payments are on time and saves you postage!
7) Know what is in your credit report. Contact the credit bureaus for a copy of your report.
Did you know...
• Bankruptcies can be reported on your credit report for 10 years?
• Information regarding lawsuits or judgements against you can be reported for 7 years?
• Default information involving the U.S. Government insured student loans can be reported for 7 years?
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