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6 Ways To Defeat Bad Credit Score

6 Ways To Defeat Bad Credit Score

Know in advance: it won’t be easy. Improving credit scores are not immediate, and will require a hefty length of time to fix. This is because lenders, institutions, and issuers evaluate your past years’ behavior and actions, taking your entire credit history into account.

Not everyone has great credit, and there’s no shame in that. Of course, life happens, and there are circumstances some people genuinely cannot avoid. It’s a tragic credit scenario that’s happened to many people.

A typical business scenario is in the construction industry where surety bond come into play when contract price exceeds $100k.

“A surety (insurance company) bond is necessary to make sure that business owners (principal) performing the task follow specific requirements as laid in contract by the oblige (entity).”

Surety will weigh the risks of “taking you on” depending on your credit score – and decide whether or not your credit is worth the hassle of issuing you a bond or not. So, your credit score will determine the fate of your business.

If your credit score is above 750… congratulations! You have excellent credit. Any account below 650 is generally considered to be less-than-appealing to issuers and lenders.

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At the lower end of the spectrum, people around the 300-600 mark aren’t doing so well. Where do you fall?

Below are several ways to help you increase your credit score so you can get back in your lender’s good graces.

1. Check Your Score

Not knowing what is happening on your credit reports is like not knowing what you spend your money on. It is simply bad practice, and spells disaster for your bottom line. Be sure to check for free annual credit reports every few months or so and stay up to date.

Something to keep in mind when you’re reviewing your scores is to see how much revolving credit you have, versus how much you actually use. The lower the percentage – the better your credit rating.

Please be sure to see if your credit card issuer accepts multiple payments over the course of a month. Certain issuers report the balance on your statement to the bureau. So, if you pay full balances every month, only one balance will be actually reported.

2. Keep Calm And Relax

No matter how annoying it may be to see negative information every time you get your credit reports, keep in mind that this information often has less impact on your credit scores over time.

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Negative information on your reports have less impact on your credit scores the more time passes. Barrett Burns, CEO of VantageScore, states that just because information stays for seven years, doesn’t mean that information is relevant each year.

For example, let’s suggest you miss a payment (which probably happened – it’s sometimes impossible to keep up to date in today’s world). Your score may drop, but will take around a year and a half for you to recover fully – falling far short of the “7 Year Fear”.

In fact, it’s generally wiser to focus on your good debt (that is, debt that you’ve handled well and paid). Focus on your good payments, it will outweigh your bad scores. Keep in mind that bad scores are, well, bad, but they are not a doomsday scenario that many people make them out to be.

Credit card expert John Ulzheimer suggests keeping old debt and good accounts on for as long as they are possibly allowed. The takeaway: do not close old accounts, whether you have a good or bad score.

3. Don’t Open Too Many Accounts

Opening new accounts rapidly destroys your credit. This is because newer accounts lower your average account’s age – widening the overall effect of your scores. Not to mention that it looks risky to credit card issuers (to them, they think you’re a scam artist for opening up new accounts).

Plus, new accounts—in all likelihood—won’t raise your credit score.

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4. Don’t Close Unused Accounts

Regardless of your good debt, bad debt, and credit score, closing accounts won’t remove your bad debt. We can equate this to asking your high school to remove your grades from report cards.

Closed accounts still show up on your overall credit report, and do more harm than good, as it shows issuers that you’re unreliable.

Closing unused credit cards accounts is an ineffective strategy for raising your scores. It simply won’t. In fact, many people have had their credit scores lowered by doing exactly that.

5. Go Fully Automatic

One way of doing this is by setting up auto-payment, or payment reminders so that you never miss them. Similar to setting up automatic payment for bills to be withdrawn from your bank account on certain dates.

I personally have a hard time remembering important matters such as these, even in my daily life. I cannot stress enough how important weekend reminders (even daily reminders) via Google Calendar are.

If you’re wary of going fully automatic, build a schedule for yourself using task management software such as Trello or Asana. I recommend Trello, as it’s an intuitive and easy-to-use system for managing tasks and to-do lists. It fits my on-the-go needs and lets me adjust my schedule accordingly.

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6. Don’t Be A Risk

For whatever reason, whatsoever, do not risk damaging your score. This means trying your hardest not to miss any payment, or suddenly paying in smaller amounts, or infrequently charging more. Maintain a good score by being consistent with your payment dates and payment amounts.

However, taking cash advances might make your card issuer wary without hurting your score. Know this: charging businesses to your card that give second doubt to your money-handling abilities also paint you as a suspicious client.

Dave Jones, former president of the Association of Independent Consumer Credit Counseling Agencies (AICCCA) warns that you do not, under any circumstance, give the impression that you’re a risk. As with anything in life.

Conclusion

Managing your bad credit scores isn’t as troublesome as many people make it out to be. All it requires is a determination and will to make your payments, consistently, as you agreed you would; not presenting yourself as a risk; adamantly refusing the temptation to open several accounts or close old ones; keeping your sanity as you handle your credit score.

Featured photo credit: via pixabay.com via pixabay.com

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Last Updated on July 10, 2020

The Definitive Guide to Get out of Debt Fast (and Forever)

The Definitive Guide to Get out of Debt Fast (and Forever)

Debt can feel crushing, like a weight that is always weighing you down. Looking at those numbers, it can feel as if you’ll never get out from under it. However, if you really want to learn how to get out of debt, it is possible with a great deal of focus and self-control.

Getting out of debt isn’t impossible. Like any big goal, all that it takes is an action plan to identify where you are and creating a plan to zero out your debt.

Identifying All of Your Debts

The first part of paying off your debt is getting a complete picture of what you owe. When you have everything written out in front of you, it makes it much easier to create an action plan. Depending on how much you owe, it might also help you realize it’s not as bad you might have originally thought.

Here’s how you can get started identifying your debts:

1. Own Your Debt

Before you start identifying all of your debts, take a moment to process that you have debt but want to get out of it.

Forgive yourself for any past mistakes, missed payments, or overspending. It might be painful to accept how much debt you have at first, but you must own it.

2. Make a Debt Tracker

It’s astonishing how few people ever created a tracker to understand their total debts. Most likely, it comes from not wanting to accept the guilt of having debt, but, if avoided, it can make it nearly impossible to get out of debt.

Open up a new Google or Microsoft Excel sheet and list out all of your debts. Start with the name of the creditor, interest rates, total balance, loan term length (if any), and the minimum amount due each payment. This will include student loans, credit cards, and any other type of debt owed.

3. Get Your Debt Number

Once you’ve made your debt tracker and taken the other steps, identify your total payoff number. This is crucial, as you will have a starting point and a clear goal that you are trying to achieve.

Prioritizing Your Debts

All debt is not created equal. It’s imperative to understand that there are different types of debt.

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1. Understand Bad and Good Debts

Bad debts are usually paying for things you want instead of always need. While there might be some emergencies that max out your credit cards, often times it’s excessive spending[1].

There are three main types of bad debt:

  • Credit Card Debt: The average American household owes over $16,000 in credit card debt!
  • Auto Loan Debt: According to CNBC , the average auto loan in the US is $30,032!
  • Consumer Loan Debt: Consumer loan debt isn’t as common as credit card and auto loan debt, but it’s still considered bad as interest rates are usually between 10-28%.

Good debt is identified as investments in your future. Here are three common types of good debt:

  • Student Loan Debt
  • Mortgage Loan
  • Business Loans

2. Decide Which Debt to Pay off First

Once you know each type of debt and their interest rates, you can begin to pay off debt quickly.

Focus on paying off bad debt first, regardless of if it is a credit card or auto loan. Start by paying off the loan with the highest interest rate first.

If you have several credit cards with different interest rates, you want to focus on the one with a higher APR. You will actually save more money by eliminating the card with the highest interest rate.

3. Don’t Pay the Minimum Amount

Paying the minimum amount digs you into a hole as interest rates will offset your payment. Even a small amount more than the minimum can help you pay off debt much faster.

Removing Obstacles to Pay off Debt Quickly

Creating a debt tracker and prioritizing a plan is simple, but avoiding temptation can be difficult.

1. Set a Reminder to Track Your Debt

“If you can’t measure it you can’t manage it.” -Peter Drucker

It’s so important to track your debt to ensure that you get it paid off quickly. Similar to working out and measuring your results, you need to track your debt constantly. Start with a weekly reminder, where you sign on and log your updated number. Did you increase, decrease, or stay the same?

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Regularly tracking your student loan balance can be incredibly motivating, as well. You will get a huge confidence boost each time you see your total debt amount decreases.

Set weekly and monthly goals so you can have short term wins and keep the momentum going.

2. Hide Your Credit Cards

If your biggest debt is credit cards, you need to eliminate temptation and remove them from your wallet.

Some people have gone to extreme measures by freezing their credit cards. Why? This would create an ice block around your card, which would require you to chip away at it slowly. This will give you time to think if it’s the best idea to buy that thing you’re about to buy.

3. Automate Everything

Willpower can be a huge downfall to paying off your debt. By automating your bills each month, you will ensure that willpower isn’t involved.

4. Plan Ahead

Getting out of debt will require some sacrifices, but with enough planning, you can make it work.

For example, if you know that you have a friend’s birthday or family dinner coming up, plan ahead for the costs. Whether you need to cut back on spending the week before, pick up a side job, or meet them after dinner, do what is needed.

5. Live Cheaply

The only way to get out of debt is to make some sacrifices on your spending habits. Find ways to save money each month so you can apply that amount to your outstanding debts. Here are some ways to save money each month:

  • Live with roommates
  • Cook dinners and prepare lunches for work instead of eating out
  • Cut cable and choose Netflix or Amazon Prime
  • Take public transit or bike to work

Finding the Lowest Interest Rates

The higher your interest rates, the harder (and longer) it will take you to pay off any debt.

If possible, you want to find ways to lower your interest rates to help get out of debt quickly. Here’s how you can get started:

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1. Maintain a High Credit Score

Your credit score will have a large impact on your ability to refinance your loans and receive a lower interest rate. If you have a low credit score, it’s unlikely you will be able to refinance your loans. Use these credit tips to increase and maintain an excellent score:

  • Never miss a payment
  • Don’t exceed 30% of your credit limit
  • Don’t sign up for more than one card at once
  • Limit hard inquires, like auto-loans and new credit cards
  • Monitor frequently with free credit-tracking software

2. Find Balance Transfer Offers

Start by opening a free account on credit.com. Credit.com offers you the chance to open a free account and see what type of balance transfer offers you can receive. Some of your existing credit cards might already have 0% or lower APR balance transfer offers available.

Contact each of your credit card providers to ask about lowering your rate for a one-time balance transfer offer[2].

If you do take advantage of this option, make sure that you use a balance transfer and not a cash advance. Cash advances have a ton of high interest fees (15-25%, depending on your credit card) and will only compound your debt problem.

How to Get Rid of Debt Forever

Setting up a plan, removing temptations, and getting the lowest interest rates is the first step to get out of debt.

1. Keep Monitoring and Adjusting

Once you have a plan, don’t get comfortable. Track your debt payoff plan and make the necessary adjustments when needed.

Monitor your credit scores with a free site like CreditKarma. The higher your credit score climbs, the more likely you will be to secure a new, lower-interest loan.

2. Earn More Money

There are only so many ways to save money. Instead of clipping another coupon or making sacrifices for your morning coffee, find ways to earn more money!

Think about it…it is much easier to find ways to earn an extra $1,000 per month than find $1,000 to cut from your budget.

Here are some examples of ways to earn more money:

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Talk to Your Boss

Have a conversation with your boss about current salary and/or commission rates. If you’re not satisfied or want a change, don’t be afraid to look around at other positions. Some of them might even have a student loan debt reimbursement plan!

Start a Side Hustle

This could be coaching students on the weekends, driving for Uber, or taking paid online surveys. There are tons of ways to make money outside your 9-5. Now that you have a clear plan to pay off your debts, you’ll be more motivated than ever to figure out creative new ways to earn money.

Build an Online Business

There are so many websites and blogs that earn money from ads, affiliates, and other online products. Find your niche and get started.

3. Celebrate Your Wins

As you progress in your debt payoff journey, don’t forget to celebrate your wins. You need to always reward yourself for the hard work and discipline that is required to get out of debt.

While you shouldn’t celebrate so big that it increases debt, make sure to factor in little rewards to keep you motivated.

4. Set New Financial Goals

Eventually, with a plan and these steps, you can rid yourself of your debt. Once you do, make sure to celebrate your monumental achievement, but don’t stop there.

Now, you can focus on acquiring wealth and increasing your net worth. Set new financial goals so you have a new target to aim toward. Here’s how to set financial goals and actually meet them.

These could be anything now that you are debt free! Think about where you want to travel, buying your first home, or saving for your future retirement. Just like before, make sure that your goals are specific, measurable, and achievable.

Conclusion

Congrats, you can now set a plan in motion to finally pay off your debt quickly (and hopefully forever)!

Remember, if you want to get out of debt quickly, it’s not always easy. Just like any big goal, there will be sacrifices, challenges, and problems to overcome.

More Tips on Getting out of Debt

Featured photo credit: Pepi Stojanovski via unsplash.com

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