Simple Steps to Improve Bad Credit

Save Money in the Long Run by Improving Your Credit Score

by Kevin Schneider

In today’s challenging economic times, a consumer’s credit score is more important than ever. A credit score is a basic evaluation of a person or a business’s creditworthiness and is based primarily on income and credit repayment history. This measuring system is used by banks and other lenders, insurance companies and even potential employers to gauge the reliability and credibility of consumers that need a loan or are applying for a job. Having no credit or bad credit may cause a consumer to pay a higher interest rate on money being borrowed or even cause the denial of the loan or service that is being requested. There are some simple guidelines that consumers can follow to improve bad credit or to simply begin to establish a favorable credit history.

Consumers should always have at a least rough idea of how much money they have coming into and going out of their possession each month. This portion of budget tracking is referred to as a person’s debt-to-income ratio and it can be a key factor in a financial institution’s willingness to lend money. Controlling spending on existing credit cards and paying off outstanding loans will lower a person’s debt-to-income ratio and make them a more desirable candidate for future loans with more reasonable interest rates. Spending one year paying down revolving debt and credit card balances can save the average consumer thousands of dollars in interest on a car loan or tens of thousands of dollars on mortgage interest during the term of the loan.

Also, when trying to improve poor credit, it is important that a consumer request a copy of their credit report from the credit bureau. This report will contain vital information such as outstanding loans and credit cards, payment history and any loans that were defaulted on or went into collections. A credit report is important so that the borrower knows what the potential lenders are seeing and knows what interest rate to expect based on the current credit score. It is also important to verify that the information on the credit report is correct. As with any agency, mistakes can be made. Verifying the previous list of lenders and the payment history and correcting any errors can often increase the odds of a consumer getting a loan as well as a better interest rate.

For younger individuals, it may be difficult to establish a credit history as very few banks will offer a loan to a person with little or no proof of credit worthiness. One viable solution is to obtain a secured credit card. These cards are offered as a means to safely build a good credit history. The card recipient will open an account with the lender and deposit a certain amount of money into an account that will be used to determine the limit on the card. A deposit of $500.00 gives the card holder a $500.00 limit on the card. Think of it as a prepaid credit card that is registered in the consumer’s name. Transactions on this card and a regular payment history will help a young person to begin establishing a strong credit history.

Bad credit or no credit can have a devastating effect on a consumer’s ability to purchase big-ticket items, obtain insurance or even land a new job. But following a few easy steps can ensure that credit issues are not a continuing problem for any consumer.