If you've had a little bit of trouble financially lately, you're not alone. And of course, this little bit of trouble might have affected your credit rating. If so, not to worry.
People obtain bad credit ratings for many reasons, and in half of the cases, it's not their fault. For example, you could get a bad credit score simply because someone in the credit bureau made an error in entering the data. Or someone with the same name as yours defaulted on a loan and then registered that default under your name. Or else you moved to a new house and last month's credit card bill got lost during the shuffle and you forgot to pay it. An expensive mistake, for sure, but an honest one. Failing to make minimum payments on a credit card consistently is definitely bad news, but forgetting once or twice to make a payment does not merit condemnation.
If you have a bad credit rating, this does not mean that your reputation or access to financial services is damaged foreve r. Indeed, you can fix this situation almost immediately, but you have to do some work to do that. However, if you are consistently behind on financial payments, or have other financial struggles that are "permanent," this is not a quick fix situation and credit counseling may be the best bet for you.
Indeed, bad credit is so common that the US Trustee Program of the Department Of Justice has approved of credit counseling agencies so that they can help people with credit difficulties. Their web site is http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm, and there are a list of credit counseling agencies available in your area that you can contact to help you.
Why Does Bad Credit Exist? In many cases, of course, the reasons you have bad credit are completely under your control. Among them are compulsive shopping, overspending, living beyond your means, et cetera . However, in many cases, you cannot control the reasons bad credit h ave happened to you, such as when personnel at the credit bureaus incorrectly enter your personal information. If you correct errors made in these types of situations, your credit rating will be restored quite easily and quickly.
There are other reasons why individuals have bad credit: being laid off the job - unfortunately, we live in an era of downsizing. Companies are slashing their budgets and trimming down staff numbers. When you are laid off unexpectedly, this can trigger off a string of events, some of which may affect your credit standing;
Another reason would be home foreclosures - this shouldn't come as a surprise given the tremendous number of people who have lost their homes this year owing to rising interest rates. During the boom period of real estate, people felt encouraged to purchase houses at incredibly low rates and then when interest rates started to climb, many first time homeowners could not meet mortgage payments;
Another situation you might find yourself facing is divorce. In fact, credit counselors have said that this is a very common reason for a sudden bad credit rating. Because assets have to be divided up between former spouses, and because there are often alimony and child support payments to consider, income that was previously adequate suddenly doesn't go as far as it used to.
Failing health can ruin a lot of credit ratings - people who fall ill unexpectedly or are suddenly suffering from a disability will not be able to continue working. We see here a domino effect: loss of health = loss of job = loss of earning potential = limited cash
Finally, the one situation that many Americans find themselves in that can be avoided is simply overstretching their own spending means by "borrowing" money from credit cards for frivolous or over-consumptive shopping. In today's "plastic" society, many people have 1, 2, 3, 4 or more credit cards and have each maxed to the limit, so that even min imum payments are difficult to come by on their budgets, not to menti on full payment of purchases made every month so they are truly living within their means.
Avoiding Bad Credit Here's the golden rule on bad credit: before making any major purchases, request for a free copy of your credit report from Equifax or Trans Union. When you read something that you believe is false or inaccurate in the report, write a letter immediately and ask for proof or ask that the report be corrected immediately. Whatever you say to the credit bureau should be executed in writing. This is the only way you can show proof that you acted in good faith. Don't wait for weeks before questioning your credit report.
If you want to repair your bad credit and restore and then maintain your healthy credit rating, you should:
Take stock of your financial situation - jot down all sources of your income and how you're going to spend that income. Create a budget and stick to it. Discipline in spending works in your favor - banks are more predisposed t o lending money to individuals who exhibit prudence;
Try to only spend less than 10% on "frivolous" expenses. Those things that you simply "want", but don't really "need"!
When you pay off debt, pay off the highest interest rate cards first. To do this, make the minimum payments on all of your other cards, then take the highest interest rate card and put all of your available "debt" cash toward that payment. Do this until you have paid off your highest interest rate card, then go on to the next. Make minimum payments on all of the lower interest rate cards, then take your highest interest rate card that still has a balance on it, and pay as much toward that as you can. You'll soon see that you can be debt free very quickly, as long as you practice discipline and diligence.
Finally, the last way to make sure your credit rating will be restored is to pay your bills on time -- all of them. Mortgage, utility, tax payments, and other bill payments made on time show creditors that you are prudent and diligent in your spending pra ctices, which will reflect positively on your report. So if you've found yourself with bad credit, don't worry. If you take some time to pay bills on time, pay off credit card debt as described above, and remain prudent in your spending, you'll be back to good standing in very little time.
Steven J. Talrechi has authored articles about credit agencies and fair credit practices for over 10 years. His specialty is helping people obtain a second chance checking account and second chance bank account when they have been turned down by banks.
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