How to Avoid Bad Credit
Check your credit score., Minimize the use of credit cards., Read your contract., Make payments on or before due dates., Keep account balances low or fully paid each month., Maintain savings for emergencies., Monitor credit transactions for accuracy.
Step-by-Step Guide
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Step 1: Check your credit score.
A credit score is a number that lets lenders know how likely you are to pay back your loan on time.
Knowing your credit score will help you determine whether or not you need to change your paying habits.
To get your credit score, contact your credit card company, loan officer, or at an online credit score service like Annual Credit Report.
Credit scores generally run from between 300 and
850.
Above 700 is generally considered to be a good score while a score under 600 will restrict your access to loans.
A credit report lists all of your credit activity, including any open accounts, debts, liens, ongoing foreclosures, and all inquiries that creditors have submitted.
Many free credit reports do not actually contain your credit score.
Reports are still useful, however, because they allow you to check for mistakes.Your credit card company may provide your credit score for free on your monthly statement or through your online portal.
Others, however, may make you pay to receive your credit score.There are many factors that contribute to credit scores.
These include your bill-paying history, your current unpaid debt, how many loans you have, how long you’ve held your loans, your credit ratio, and any new applications for credit. -
Step 2: Minimize the use of credit cards.
Credit cards are a common source of debt.
If used responsibly, credit cards can help build good credit, but if allowed to get out of hand, credit cards can quickly lower your score.
To use credit responsibly, make sure that your credit card balance does not exceed more than 20% of your total credit limit.
Pay more than the minimum towards your credit card debt each month.
Ideally, you should be paying back the full balance each month.
If you do not pay back the full balance, you will accrue interest on the debt you have not paid, which will increase the debt over time.Use the card for small purchases, such as gas or groceries, or for purchases that get you special cash-back bonuses through your bank. , Reading your credit card contract or loan agreement will help you understand what you need to do to remain on good terms with your debt.
Hidden penalties can sometimes hurt your credit.
Some common things you may want to look out for include:
Penalty APR:
If you don’t pay your balance on time, the lender may increase your interest rate.Acceleration clause:
If you miss enough payments, the lender may declare the entire balance due at once.
Balloon payments:
Your loan may have small monthly payments with a large final payment at the end, known as a balloon payment.
Sometimes, this final payment is too large for you to afford paying it.
Failure to pay the balloon payment may cause the lender to initiate repossession or foreclosure., One of the most effective ways to avoid bad credit is to make all payments on your bills and debt on time.
There are many reporting and monitoring agencies that alert the credit bureaus if you are late or delinquent on any payment.
Late payments can cause your credit score to drop.
It is important to pay each of your bills on time.
This includes credit card bills, rent, utilities, and even cable and cell phone bills.
Pay your bills at the same time each month.
For example, each time you get paid, take time to sit down and make payments.
Keep track of due dates by noting them in your calendar.
You can even use technology--set reminders to help you remember each payment date.
Many utility companies and credit agencies will allow you to set up automatic payments each month.
These will automatically charge you when the bill is due for payment. , Using credit responsibly can be a good way to build your credit score.
However, hitting the limit on any of your credit lines will lower your score.
You should also avoid maintaining large balances on any of your cards.In addition, avoid creating a high debt-to-income ratio.
This ratio measures your income to the amount you pay in debt payments each month.
A high ratio (over one third of your income going to debt each month) can make you less creditworthy.
Try to keep your credit card balance under 20% of your credit limit. , It can be tempting to use your credit card when there has been a costly emergency, but you can avoid this debt by keeping at least three months of your wages saved in an emergency fund.
Do not touch this money unless you absolutely need to.
If you have children or dependents, you may want to save more than three months of your wages.
If you have no emergency fund currently, try saving a little bit of your paycheck each month to put into an emergency fund.
Start with whatever money you have to spare, no matter how small., You are able to request a free credit report once every twelve months.
You can get this report from each of the major credit bureaus— Equifax, Experian and TransUnion.
Go over the report carefully, and double check all transactions on the report.
If you see a mistake, report it immediately to have it removed.
Sometimes, credit reporting agencies will confuse people with similar names.
If you have information on the report that does not belong to you, it may be a case of mistaken identity.
If you have been divorced, your ex-spouse’s information may still be on the report.
If this happens, report it immediately.
Occasionally, a debt that has been paid may still be listed as delinquent or it may be listed twice.
Report these discrepancies immediately.To report a mistake, you can write the credit reporting bureau a letter or you can use their online platform.
Provide documentation of the mistake.
By law, they must either open an investigation or delete the mistake within three days.
They inform when they have done this. -
Step 3: Read your contract.
-
Step 4: Make payments on or before due dates.
-
Step 5: Keep account balances low or fully paid each month.
-
Step 6: Maintain savings for emergencies.
-
Step 7: Monitor credit transactions for accuracy.
Detailed Guide
A credit score is a number that lets lenders know how likely you are to pay back your loan on time.
Knowing your credit score will help you determine whether or not you need to change your paying habits.
To get your credit score, contact your credit card company, loan officer, or at an online credit score service like Annual Credit Report.
Credit scores generally run from between 300 and
850.
Above 700 is generally considered to be a good score while a score under 600 will restrict your access to loans.
A credit report lists all of your credit activity, including any open accounts, debts, liens, ongoing foreclosures, and all inquiries that creditors have submitted.
Many free credit reports do not actually contain your credit score.
Reports are still useful, however, because they allow you to check for mistakes.Your credit card company may provide your credit score for free on your monthly statement or through your online portal.
Others, however, may make you pay to receive your credit score.There are many factors that contribute to credit scores.
These include your bill-paying history, your current unpaid debt, how many loans you have, how long you’ve held your loans, your credit ratio, and any new applications for credit.
Credit cards are a common source of debt.
If used responsibly, credit cards can help build good credit, but if allowed to get out of hand, credit cards can quickly lower your score.
To use credit responsibly, make sure that your credit card balance does not exceed more than 20% of your total credit limit.
Pay more than the minimum towards your credit card debt each month.
Ideally, you should be paying back the full balance each month.
If you do not pay back the full balance, you will accrue interest on the debt you have not paid, which will increase the debt over time.Use the card for small purchases, such as gas or groceries, or for purchases that get you special cash-back bonuses through your bank. , Reading your credit card contract or loan agreement will help you understand what you need to do to remain on good terms with your debt.
Hidden penalties can sometimes hurt your credit.
Some common things you may want to look out for include:
Penalty APR:
If you don’t pay your balance on time, the lender may increase your interest rate.Acceleration clause:
If you miss enough payments, the lender may declare the entire balance due at once.
Balloon payments:
Your loan may have small monthly payments with a large final payment at the end, known as a balloon payment.
Sometimes, this final payment is too large for you to afford paying it.
Failure to pay the balloon payment may cause the lender to initiate repossession or foreclosure., One of the most effective ways to avoid bad credit is to make all payments on your bills and debt on time.
There are many reporting and monitoring agencies that alert the credit bureaus if you are late or delinquent on any payment.
Late payments can cause your credit score to drop.
It is important to pay each of your bills on time.
This includes credit card bills, rent, utilities, and even cable and cell phone bills.
Pay your bills at the same time each month.
For example, each time you get paid, take time to sit down and make payments.
Keep track of due dates by noting them in your calendar.
You can even use technology--set reminders to help you remember each payment date.
Many utility companies and credit agencies will allow you to set up automatic payments each month.
These will automatically charge you when the bill is due for payment. , Using credit responsibly can be a good way to build your credit score.
However, hitting the limit on any of your credit lines will lower your score.
You should also avoid maintaining large balances on any of your cards.In addition, avoid creating a high debt-to-income ratio.
This ratio measures your income to the amount you pay in debt payments each month.
A high ratio (over one third of your income going to debt each month) can make you less creditworthy.
Try to keep your credit card balance under 20% of your credit limit. , It can be tempting to use your credit card when there has been a costly emergency, but you can avoid this debt by keeping at least three months of your wages saved in an emergency fund.
Do not touch this money unless you absolutely need to.
If you have children or dependents, you may want to save more than three months of your wages.
If you have no emergency fund currently, try saving a little bit of your paycheck each month to put into an emergency fund.
Start with whatever money you have to spare, no matter how small., You are able to request a free credit report once every twelve months.
You can get this report from each of the major credit bureaus— Equifax, Experian and TransUnion.
Go over the report carefully, and double check all transactions on the report.
If you see a mistake, report it immediately to have it removed.
Sometimes, credit reporting agencies will confuse people with similar names.
If you have information on the report that does not belong to you, it may be a case of mistaken identity.
If you have been divorced, your ex-spouse’s information may still be on the report.
If this happens, report it immediately.
Occasionally, a debt that has been paid may still be listed as delinquent or it may be listed twice.
Report these discrepancies immediately.To report a mistake, you can write the credit reporting bureau a letter or you can use their online platform.
Provide documentation of the mistake.
By law, they must either open an investigation or delete the mistake within three days.
They inform when they have done this.
About the Author
Peter Thomas
Brings years of experience writing about creative arts and related subjects.
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