How to recover from bad credit

Despite the fact that there are numerous tools and ways of checking credit scores in a matter of minutes, many people remain oblivious to their current status. On most days, your credit score might not matter all that much. However, when the time comes to apply for any kind of credit (like when you buy a home or car), your score will play a significant role in the approval process. Scores range from 300 to 900, and if your score is 700 or above, it tells the lender that you manage your credit very well. If, on the other hand, you score below 700, credit approval becomes more difficult. Some factors that affect your credit score include outstanding debt, payment history, types of credit, recent inquiries, and your credit account history. All the more reason to be diligent when it comes to those monthly payments!

If, for whatever reason, you find yourself with a lower credit score than you'd like, there are a number of steps you can take to rectify this. Remember, improving your score will not happen overnight, and there are no quick fixes. These tips will not only help you improve your score but also break any bad habits along the way:

Statement review

Before you can move forward, you need to know where you went wrong. Take an honest look at your spending, how much is due each month, and how much you are paying each month. Make sure that you keep all of your receipts when paying with your credit card and compare these receipts with your bill at the end of the month. If you notice any charges that don't make sense, call the credit card company or your bank and verify the purchase. This might take a few days (or more), but it's always best to ask about these charges rather than simply letting them slide.

Pay on time

At the end of each month, your credit card statement will indicate the final balance, a minimum payment due, and the date by which this amount must be paid. Failing to do so will reflect poorly on your credit history, and you will be liable for penalties. The same applies if you fail to pay at least the minimum amount for that bill. Remember, as the balance of your card fluctuates, so too will the amount payable. Make sure that you check your bill every month and pay before the due date. If you are able to pay the full amount off, feel free to do so.

Spend carefully

Having a credit card can often lead to excessive spending. It's important to have a plan and stick to it. Experts agree that you should only use a maximum of 30% of your available credit. When spending on your credit card, it's also a good idea to limit yourself to your actual monthly means. The best way of staying out of debt is by spending less than you earn. For some, a strict budget can take some getting used to, but it will more than pay off in the long run.

Don't apply for more

Each time you apply for credit, the creditor will run a check on your score. Any more than two checks against your name and it will start to affect your score negatively. This is because multiple checks act as a red flag and tell potential creditors that you are struggling financially.

Secured credit card options

Although you should not technically apply for too many cards, a secured credit card is an essential part of rebuilding a positive credit score. They come in particularly handy if you are new in the country or you have recently filed for bankruptcy. These cards require a deposit in advance before the credit can be approved. Of course, it's still essential to pay your balance on time, or you will only repeat past mistakes.

As previously mentioned, this is by no means a quick fix, but it is a sure way of getting back on track. At Wallet Savvy, we understand that building a good credit score takes time, but it's always worth the effort.

Remember, whenever applying for any line of credit, it's also important that you read the agreement in its entirety before signing and agreeing to the terms.