Having the bad credit albatross around your neck can bring down many aspects of your life, not just your purchasing power. It can keep you from doing everything from dining out on a credit card to taking that vacation to getting the car you want and much more. It can be like a ball and chain that holds you back from the things you want out of life if you let it. There is light at the end of the tunnel, however.
First of all, the best way to stay away from having bad credit is to pay your bills on time so you never get there in the first place. Having said that, this article is about already being in debt, so here’s what you need to do to get out of it.
Credit card debt is the most common cause of bad credit, mainly because most people view lines of credit as a non-essential bill when it comes down to hurting for money. In other words, you will always pay the mortgage, the utilities, the car note, the car insurance and sometimes even things like the cable bill before you make a credit card payment when money is tight. This one is usually the odd man out if you don’t have enough to pay them all every month and it will fall behind. There are those who tend to run up credit cards and use other cards to pay off the ones that are behind and pile up a mountain of debt, hoping it will go away eventually. This day will never come and you will destroy your credit rating.
Then, there is the trick of refinancing your house and paying off all your credit cards with the equity. This works for some people, and it’s a great way to cut down your monthly expenses but most people that do that just end up running up the cards again and being worse off than they were to begin with because they have lost their equity for nothing. This will end up badly if you don’t get rid of the cards while they’re paid down and show some financial discipline when you consolidate by refinancing.
Once you have bad credit, it’s a whole lot harder to get rid of than keeping good credit scores. It requires a lot of discipline and a lot of sacrifice to pay off old debts while still keeping your current bills paid up to improve your credit score. It’s an uphill battle, but it can be done. The key is to keep paying your bills and getting that score up to the point where you can get loans and credit cards again and then using your score to obtain things that will further raise your score.
House notes and car notes are the main things that push your score higher when you pay them on time, mainly because they’ll have the highest dollar amounts. Pay them on time and/or catch them up and it will go a long way towards turning things around. If you pay your house and car payments on time for a year, your score will likely come back up 50-100 points unless you’re late a month or two on credit cards, etc.. You can’t pay your house and car and ignore everything else and expect your credit to get better, it won’t happen. Any negative reports from late or unpaid debts will do more damage to your rating and you will be spinning your wheels.
The short answer is to buckle down and start living within your means. If you have to get a cheaper new car or even a used one with no payments to be able to pay your bills on time, then do it. If you have to lose cable TV (perish the thought, I know), then temporarily get a set of rabbit ears and use dialup instead of high speed for a couple months or so to catch up and get ahead of it. Get rid of either your cellphone or your land line if you use your cell all the time for a little while. Get rid of your lawn service and mow it yourself for now. Kill the central air and use fans, anything you can do to cut costs for a period of time so you can get ahead of the debt/income curve.
Discipline is the key to turning your credit score from an anchor around your leg to a balloon lifting you up into the stratosphere of spending power. Without it, you will just spin your wheels and forever be a low 500 score that has to struggle and fight just to get a car loan or a credit card, let alone ones with good rates.
Make sure you go once a year to www.annualcreditreport.com and get a free copy of all 3 credit reports from the major bureaus so you can make sure that there are no false or incorrect reports on there that are messing up your chances at good credit. A high percentage of credit reports have items on them that aren’t even yours and you have to stay on top of it to get them removed. Places like www.freecreditreport.com will give you your scores but only if you join their credit monitoring service that’s free at first, but you eventually get stuck with a monthly fee after the trial period.