For millions of people, bad credit is a way of life. It’s the only thing they’ve ever known and there’s very little hope that the situation will improve. But don’t let your future be defined by poor credit. There is a way out – will you seek to escape?
The Effects of Bad Credit
Perhaps you have bad credit, but aren’t really worried about it. Well, you probably should be. Bad credit marks you with a scarlet letter and negatively impacts you in multiple ways. Some of the common side effects include:
- High interest rates. When you have poor credit, you’re seen as a higher risk to credit card companies and lenders. As a result, you’ll end up paying much higher rates on credit cards, mortgages, car loans, and any other type of loan you take out.
- Denied loan applications. In some cases, you might not even have access to loans. Certain lenders will deny your applications if your credit doesn’t fall within their required limits.
- Limited access. Apartment managers, utility companies, and even cell phone providers frequently run credit checks on prospective customers. If your credit is poor, you may have trouble obtaining these necessities.
- Higher insurance premiums. When it comes to auto, life, and health insurance, you may end up paying higher premiums. This can cost you hundreds – if not thousands – of dollars per year.
At the end of the day, bad credit equals higher stress. Things that should otherwise come easy are difficult and expensive to obtain. This isn’t the way you want to live your life.
5 Tips for Improving Your Credit
Every situation is unique. You’ve made your own mistakes, have your own individual history, and possess different strengths and weaknesses. However, the following tips will almost certainly allow you to gradually build your credit back up and enjoy financial freedom once and for all.
1. Obtain a Copy of Your Credit Report
Begin by obtaining a copy of your credit report from one of the three credit bureaus. This does a couple of things for you. First off, it helps you verify exactly which loans and debts you have to your name. You can cross reference this with your own records to create an itemized list of what you owe. Secondly, it helps you ensure the information is accurate.
Believe it or not, credit report errors are fairly common. If you find an error on your report, fixing it could bring up your score right from the start.
2. Develop a Budget
The next step is to create a written budget that shows exactly how much money is coming in and going out each month. You might think you know the numbers in your head, but there’s something powerful about seeing it written out in front of you.
3. Make Payments On Time
Within your budget, be sure to prioritize debt payments. Paying off debt on time is a significant factor in your credit score. The more consistent you are, the higher your credit score will go.
4. Use (and Pay Off) Your Credit Card
You must use a credit card to build up a positive credit history. However, the irony is that people with bad credit often don’t get approved for credit cards. This leaves them unable to dig their way out of a hole.
Your best bet is to apply for credit cards that are specifically designed for people with bad credit. You may have to pay an annual fee or put down an initial deposit, but these cards will help you get back on track. (Just make sure you only use a small amount each month and pay it off by the due date!)
5. Set Goals
Going from poor credit to good credit can feel like an uphill climb. To increase your chances of reaching the summit, set goals along the way. Smart goals will allow you to break the challenge down into digestible parts.
Never Turn Back
Once you improve your credit, it’s imperative that you never let yourself slip back into your old ways. Bad credit is a death sentence, and you must make it a priority to behave with purpose and intelligence in your financial life.
After all, you’ll never regret making a smart decision with your money.