5 Tips on rebuilding credit

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5 Tips on rebuilding credit
2 years ago
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As the country sinks deeper into recession, the number of people suffering from bad credit is bound to increase. More people are losing their jobs everyday and they can no longer afford to pay for their mortgages let alone settle their credit card debts. It's no wonder many see their credit scores going down. Could that include you? You should realize that your low credit rating need not stay that way. There are steps you can take to rebuild credit.

1. First, Find Where the Problem Lies
The first step in problem solving is identifying the problem. Why is your credit score low? A poor credit score is not really the problem by itself. Rather, it is a result -- a consequence -- and indicates that there is a much bigger problem that you have to resolve to avoid recurrence in the future. Are you handling your money well? Are you borrowing more than you can afford to pay? Is this a sudden reversal of fortune, meaning did you just lose your job?

2. Secure a Copy of Your Credit Report
You will need to review your latest credit report. Check for any errors and old information. If you note erroneous entries in your credit report, request the credit bureau to correct your records. There is a specific process in disputing any entries in your credit report, and this requires formal communication and submission of supporting documents and evidences. You can do this yourself; don't make the mistake of engaging a credit repair company because most of them only run scams. You can check the website of the Federal Trade Commission for details on how to do credit repair yourself.

3. Get Rid of Your Credit Cards
Cut up your credit cards so you will not be tempted to get into more debt. You may perhaps save one or two major cards for emergency but keep them at home and do not bring them with you when you go shopping. If you need to buy something, pay for it in cash. That will teach you to spend only on necessary things. If you want something really bad and you don't have the cash to buy, save up for it.

Do remember that credit card accounts carry higher interest rates than loans. If you keep on buying things on credit and you don't pay the bill in full, you will end up paying for not only the original amount you owe but also for the interest that accrues on your account. It also does not pay to use the cash advance facilities of your credit cards.

4. Pay All Your Bills Promptly
Pay all your overdue accounts immediately and keep all your bills current. After a few months of paying your bills on time, you should see your credit score improving. If you cannot afford to pay the total outstanding balance, make it a point to pay more than the minimum amount required. This will help you bring down the principal amount and reduce the interests you have to pay.

5. Spend Wisely
Curb your impulse buying tendency. Just because stores are doing discount and clearance sales doesn't mean you have to buy those on-sale items. Buy only the things that you really need and can afford to pay for. Create a budget and follow it closely. Set aside a specific amount or percentage of your income monthly as savings. Remember that it is your savings and not a sinking fund so you can go on an exotic vacation or buy that plasma TV you've been wanting at since last year. If you want to save up for a major purchase, save up for it but keep the money in a separate account from your savings. Your savings should go to your nest egg for emergency or your retirement.

by Max E.
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