Rebuilding Your Credit

In today’s economic climate, it’s easy to find yourself in a financial situation you never expected. With so many ways to accrue debt, one late payment can easily turn into many which translates into bad credit rather quickly. When you find yourself in a situation that seems impossible to get yourself out of, please remember to breath. Your financial situation, while it may seem so, is not unique. Thousands of people have been in your proverbial shoes and are have found their way out. So will you.

Sometimes, you will have to make sacrifices to get there. Most times this means downsizing your life; moving into a smaller home or apartment, buying a compact car instead of a luxury SUV. But before you think, “I have to sell my car fast”, know that there are options you have available to you.

Rebuilding your life on paper is going to take some effort and definite sacrifices. It is a humbling experience, but the payoff is better credit and a stronger sense of self. By taking the correct steps, you will find out that fixing your credit is the right action for you.

If you’ve recently found out that you’ve been caught up in bad credit either through late or faulty payments or just by having any, you’re one of many people who in today’s society, are dealing with bad credit. While this seems scary, daunting and everything you’ve been warned not to have, literal millions of people are in your exact situation.

The good news: it is fixable. The bad news: it may mean changing your habits.

When Life is Hard You Have to Change

Change isn’t always a bad thing though, so let’s start looking at this as a positive fix rather than a detrimental one. First off, as corny as it may sound, you really must start thinking positively. Outlook will forever determine your actions. If you think “there’s no way I can fix my credit score” then it won’t happen and this is only because you don’t believe it. If you don’t believe it, you won’t take the necessary steps to ensure it does, so you’re already defeated.

On the other hand, if you think “wow, that is a low number, but I know credit scores are flexible, so I’ll get started now to fix it” then you will the necessary steps to do so. Sure it’s a slow process and retraining yourself to think positively won’t be easy, but like anything in this life that’s worth it, you’ll have to work and wait for it. Rest assured, it will change.

Starting: Now Is As Good a Time As Any

Really, why not start now? What else are you doing? There are going to be some truths you will need to recognize about yourself. The sooner you get started in accepting these truths, the better off and more motivated you’ll be to change them. First: you’re probably not that great with finances and that’s okay. A lot of people aren’t. In fact, there are a number of businesses who prey and rely on this fact to make their money. Don’t be their pawn. Recognize your failures, learn and move past them.

Examine Your Situation

So, how do you become good with money? This is a good question and one that really needs to learned. Take an afternoon where you have nothing to do but go over your total financial situation. If you have a trusted friend, parent, or confidant who can sit, listen, and explain questions you have, use them. Your resources are valuable. A good friend, parent or confident should be someone who won’t judge you, but won’t baby you or save you from this situation, but rather seriously talk you through this. Now is when you need a good friend, to listen and give sound advice.

Even if it’s difficult to hear what they have to say, which it most likely will, remember you chose this person for their honesty and goodwill. What they say will most likely help you in some way, shape or form. Listen and don’t argue. You have two ears and one mouth for a reason.

Chances are you’ve already looked at your credit score which is why you’re in this situation. Look at your credit score and the itemized list of credit, debt and payments. Identify and prioritize the problems.

Credit Utilization Ratio

If your main problem is credit card debt, there are ways to focus and redirect your attention on paying them down. You will need to determine your credit utilization ratio, also known as debt to credit ratio. If you have multiple cards, you will need to do this for each card. You find the ratio by taking your current balance and dividing it by the credit limit and then multiplying that number by 100.

For instance: if you owe $1,000 on a card with a $10,000 limit, your credit utilization ratio is 10%. Your goal is to have a credit utilization ratio under 25%. Any higher and it will affect your credit score. If all your credit utilization ratios are under the 25% mark, then continue to make payments on time. If one or two peak higher than this, focus your attention on paying those down first.

Make Payments on Time with Direct Deposit and Automatic Deduction

Normally, a problem with bad credit is making payments on time. When you check your score and itemized debt, you will be able to see how many of your late payments have affected your credit score. What do they look like? Are they all late? Can you honestly identify why they are late?

If you have a job that can directly deposit your check into a savings account, you can then set up any payments you make for car payments, student loans, phone bills to be automatically deducted from your bank account. Without ever having to write another check or make another embarrassing phone call, you can access and monitor your bank account through the internet to make sure that the proper payments are being made. This will dramatically help your situation. As soon as payments start being made on time, you will notice your credit score improving.

Make and Live Within a Reasonable Budget

This is important. Once you have set up payments to be automatically deducted from your bank account, make a list of the payments you make in a given week. Include in this what you spend on food be it at the grocery store, restaurants and take-out. Do you buy lunch everyday at your work or bring it from home? Include what you spend on rent, gas, and any extras like alcohol and cigarettes. While you may or may not be aware of these expenses in your life, they add up quickly and are the easiest to regulate.

Once you have the list of all your weekly expenses, make a similar list for your monthly expenses. Include things like rent, phone bill, car payment, insurances, student or personal loans, as well as your weekly expenses. Once you have this total added up, does it exceed or fall under what you make per week/month? If it exceeds what you make in a month, you’ll need to reevaluate any extra expenses or vices. Bringing a bag lunch to work is the best way to cut costs and you’ll see these savings almost immediately.

If your total costs fall under what you make in a month, congratulations! You are in the green and can start saving! Use this extra money to put towards paying more debt off and you’ll be well on your way to fixing your credit score!