Money can be difficult for people to handle. Whether you’re unemployed, underemployed, or simply spend beyond your means, a few missed payments could have serious consequences for your future. A poor credit score can mean you cannot qualify for a car loan, mortgage or even a cell phone plan – unless you want to pay a ridiculous security deposit.
Your credit score tells lenders how much of a liability you are and if you’re worth investing in. Credit scores typically range from 400 – 900. The lower your score, the more risk it is for the lender to give you money. If you possess a score of 700 and up, the creditor will usually deem you a good risk and is more likely to loan you the money you need.
The average credit score in North America currently sits between 650-680 and if you are within that range, you will find it easier to obtain cell phone contracts, credit cards and other small loans then someone who possesses a lower than average score.
Credit scores can also dictate the interest rates for your loans. If someone possesses a high credit score from the mid-700’s and up and applies for a mortgage, they will be offered a lower-interest rate than someone with an average credit score.
If you do find yourself with a bad credit score, here are a few tips to get yourself back out of that hole.
If you already have a low credit score, it is not the end of the world. However, you do have your work cut out for you to make yourself favorable to lenders.
With disciplined spending and hard work, your credit score can increase and you can return to favorable light to creditors.
1. Pay your bills.
This may seem obvious, but defaulting on bills and late payments are likely responsible for the predicament you find yourself in. Getting into the habit of routinely paying your bills on time shows favorably on your credit report and shows lenders that you can manage your financial affairs.
After enough time passes showing positive activity on your accounts through timely payments, the old, destructive patterns of missing payments or late payments become a thing of the past and show creditors that you have turned over a new leaf.
2. Revise your budget.
For those of you rolling your eyes at the above advice because you feel that your income does not equate to the amount of money that needs to get paid monthly, believe that old commercial: You’re richer than you think.
More often than not, you’re spending money that you don’t have to. Grab a note book, or start a spreadsheet and track every cent that you spend in one week. You will likely be shocked at how quickly that morning takeout coffee or daily fast food lunch adds up.
3. Think about it.
That $4.00 latte from Starbucks each day adds up to a whopping $120 per month! That is often a good portion, if not an entire monthly payment on that maxed out credit card. An average fast-food lunch costing $8 doubles that number at $240 per month. If you indulge in both every day for 30 days that is $360 you’re spending on what could be considered frivolous expenditures.
Tracking your expenses for one week is often enough to give you a good idea of where your money is going. Right now, it likely isn’t going where it should be – to your bills.
4. Obtain a secured credit card.
For those of you without active credit cards, listen up. Credit card companies like Capital One as well as your bank offer what is called a “secured credit card.” A secured credit card requires a deposit of either $300 or $500 to obtain it, with your credit limit equating that amount.
What’s the point, you ask? Sure, it may seem it defeats the purpose of a credit card to pre-pay your credit limit, but the creditor is now at a zero-risk scenario and you now have the ability to build favourable credit activity. Usually after a year or so of good behavior of paying your credit card bill on time, you will have that deposit returned to your account and sometimes even get an increased credit limit.
5. Get a small loan.
You need credit to build credit. Obtaining a small loan for a vehicle, for example, is a quick and effective way to build your credit fast. With timely loan payments, it is not unheard of for your credit score to rapidly increase closer to an average score of 650 – 680 in less than a year with on-time payments – every time!
Sometimes, a cosigner is needed to obtain a loan, which could be the extra motivation to ensure you make your payments. Getting someone to take that leap of faith is easier said than done. Being steadily employed and proving that you are changing your free-spending ways will make your cosigner feel more secure about putting themselves out there for you.
6. Protect your private information.
Identity theft is a huge problem that can have devastating effects on your credit score. Modern technology has made it easy for hackers to obtain your credit card numbers, Social Security Number (or Social Insurance Number for Canadians) and wreak some serious havoc on your finances.
Shredding bank statements, bill statements are easy ways to ensure your important personal information does not fall into the wrong hands. Don’t leave pay stubs laying around your house or desk at work, or inside your car, because they contain information you don’t want dishonest people obtaining.
The internet is probably the biggest threat to your financial security. Take care in ensuring your online payments are made through secured websites, otherwise you are taking some seriously dangerous gambles with your money.
And the most important thing to remember when trying to repair your credit is seeking professional financial advice. Go to your bank and make an appointment with a financial advisor. They will be able to provide you with the guidance and plan you need to increase your score and secure your financial future.