Credit Education

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03. Aug, 2016

First Step of Fixing Your Credit is Admitting there is a problem!

Most people have heard how organizations like Alcoholics Anonymous do a wonderful job helping addicts recover from substance abuse problems. Without exception, the first step to recovery requires the addict to recognize a problem exists. Only at this point they become willing to seek help. The same rule applies to people who regularly live beyond their means. Unless they acknowledge the damage that financial recklessness causes, they won’t be willing to change. In many cases, poor money handling results from a lack of understanding but sometimes is an addiction problem.

Recognize the Signs of a Credit Problem
It’s hard to miss the signs of a serious credit problem, but some people are adept at ignoring them. These bitter messages come in the form of threatening letters and phone calls from lenders, and shops refusing to accept credit cards. Anyone with a bad credit rating should also expect loan and mortgage application rejections.

In addition, quite a few employers carry out credit checks on new staff. Job applications are declined for many reasons, but a series of rejections for suitable vacancies might indicate major credit problems. However, the financial details in credit reports offer the strongest signs of finance mismanagement. Even if these rejections have little impact, perhaps a really negative credit report will drive home the need for change?  .

Low Credit Scores
Credit bureaus assign credit scores based on data banks and other lenders supply. A bankruptcy or two, a series of loan defaults, a large number of delayed payments, and more than a third of available credit in use dramatically reduces credit scores. On the most popular FICO (Fair Isaac Corporation) scale, credit scores below 649 fall into the bad credit category. FICO points out that more than a quarter of Americans have low credit scores — but that doesn’t make it more acceptable. Remember that almost two thirds of Americans have credit scores above 700.

Financial Reputation Restoration
Low credit scorers face formidable challenges restoring their financial reputations. Even after that New Year Resolution to start paying bills on time and cut credit card debt, it takes a long time for the results to percolate to credit report improvements. In the meantime, debtors find it hard to get new loans on favorable terms. In this desperate situation, it becomes much harder to escape the burden of rising debt. This fact reinforces the importance of quickly recognizing a credit problem exists and starting to correct it.

Draw up a Credit Status Improving Strategy
After finally accepting the credit problem is real and needs improved, it’s possible to draw up a battle strategy. Make a detailed debt summary. This brings home the severity of these problems as well as provides a framework for building a recovery plan. Next, work out ways to eliminate or drastically cut debts. Set aside sums to make regular repayments. Try to negotiate easier repayment schedules with creditors.

Over time, make efforts to reduce the percentage of available credit in use. If possible, pay for goods and services in cash rather than credit card. Remember to check credit reports to see how well the strategy is working –  but don’t expect instant results. If the task sounds too daunting to take on unaided, help is available from credit counselors and various online resources.

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