A credit score is a rating system creditors use to help determine
whether to give you credit, and how much to charge you for it. If you
have ever applied for a credit card, loan, or insurance, then there is
a file about you known as your credit report which will include your
quality score rating.
It is important to check your credit report for accuracy from time to
time. This file has information about you and your credit experiences,
bill paying history, the number and type of accounts you have, late
payments, collection actions, outstanding debt, bankruptcies, and the
age of your accounts, collected from your credit application and your
credit report. Using a statistical formula, creditors compare this
information to the performance of consumers with similar profiles. A
credit scoring system awards points for each factor. A total number of
points, know as a credit score, helps predict how creditworthy you are,
that is, how likely it is that you will repay a loan and make the
payments on time. Generally, consumers with good credit risks have
higher credit scores. The quality of your credit rating can impact your
ability to get credit, insurance and employment. Having good credit
means it will be easier for you to get loans at lower interest rates.
Lower interest rates usually means lower monthly payments which saves
you money.
Do you have bad or poor credit? Do you want to improve your
creditworthiness and credit rating? Then you are on the right track and
there are proven steps you can take on your own to make this happen.
Now for the bad news. Only time and effort, along with a personal debt
repayment plan will improve your credit report and rating.
The good news is that you can do all of the things necessary to improve your credit rating by yourself at little or no cost.
Step 1. Develop a personal budget.
Take control of your financial situation by doing a realistic
assessment of how much money you take in and how much money you spend
each month. List your income from all sources. Then, list your "fixed"
expenses, those that are the same each month, like mortgage payments or
rent, car payments, and insurance premiums. Next, list the expenses
that may change or vary from month to month like food, entertainment,
recreation, and clothing. Writing down all of your expenses, even those
that may seem insignificant, is a helpful way to get a grip on and keep
track of your spending patterns, identify necessary expenses, and
prioritize your expenditures. The main goal is to make sure you can
make ends meet on the basic living necessities like housing, food,
health care, insurance, and education.
Step 2. Balance your checkbook.
Yes it seems common sense to do this but you would be amazed at how
many people either don't know how to do it, or just hate balancing
their checkbook. If there is something on your bank account statement
that is confusing or you just can not quite get right, then go see your
banking representative for help. Either way, it is absolutely critical
to control your checkbook or it will continue to control you.
Step 3. Create a plan to save money and pay down your debts.
You might say ... hey, I can not pay all of my bills now, how am I
going to save any money? That is why getting your personal budget under
control is so critical. Cutting your monthly expenditures for items
that are not absolutely needed will be necessary in order to get your
budget under control. It sounds simplistic, but your goal is to have
more money coming in each month, than the amount of money you spend
each month. Until you find a way to make this basic truth happen, you
will not be able to pay off your debts and become more credit worthy in
the eyes of lenders.
Not quite sure how to accurately gather and itemize all of your monthly
expenditures and compare them to your monthly income? You can find lots
of helpful resources available online, at your local library, or at
bookstores that address money management techniques, personal finance
and budgeting.
Step 4. Pay your bills on time.
Goes without saying but it is necessary in order to show lenders that
you are improving and are capable of making on time payments each
month. If you're having trouble making ends meet then contact your
creditors immediately. Tell them why it's difficult for you, and try to
work out a modified repayment plan that reduces your payments to a more
affordable level. Don't wait until your accounts have been turned over
to a debt collector. At that point, your creditors have given up on you.
These are some of the painful but necessary steps you must take in
order to improve your creditworthiness and rating in the eyes of
current and future lenders. So, embrace these steps and make it work
for your needs.
