Restoring Your Credit

credit card

Unfortunately, life doesn’t always go as you plan and, sometimes, you will encounter periods of financial difficulty. If you have a savings set aside, it’s no issue, and you just take out the money to cover your expenses. However, without a safety net in place, you will end up borrowing money from your bills and end up with late payments, additional fees and a reduced credit score. The good news is that if your credit score is low, there are ways to improve it. 

Pay On Time 

One of the best ways to start to raise your credit score is to pay your debt on time. Thankfully, there are several ways to achieve this. If you have equity in your home, consider doing a refinance and use the money to pay down your outstanding debt and bring your bills to a current status. If you don’t have a mortgage or no equity in your home, you can borrow a small amount through an installment loan. For instance, if you live in South Carolina, you can look online for lenders who offer South Carolina installment loans

Re-evaluate Your Spending Habits 

Many people bring in enough money to cover their bills, but they simply have poor spending habits. If you see something you want, and it costs over $500.00, instead of putting it on a credit card, save up for it. Adding it to your debt is only going to increase your monthly payments and your debt-to-income ratio. Learning to pay with cash is a great way to start reducing your debt. 

Paying Down Debt 

Debt management is a very important component in a healthy credit score. Your debt-to-income ratio can also lower your overall credit score. It only makes sense that if you have a mortgage, two car payments, a personal loan and multiple credit cards with high balances that you will give the perception of a higher risk to lenders. By reducing the balances on your credit cards to within a third of the credit limit, you’ll start to increase your credit score. 

Importance of Established Credit 

Your established credit shows any lender that you are trustworthy and responsible. So if, while you are in the process of reducing your debt,  you may opt to close cards out, be wary. If you have relatively new cards, such as store cards, with higher interest rates, you can cancel them. However, if you have a few cards that you have for more than a few years, those you should keep active, as they will work in your favor. 

Borrow Only What You Need 

Even if you are able to borrow more, you should always only borrow the amount of money that you need. This will help you to repay the loan in a shorter amount of time and pay less in interest, and it will also help to keep your debt-to-income ratio within the acceptable range.   

Establishing a Budget 

Without having a budget to reference, it’s easy to miss a bill that only comes due a few times a year, such as school tuition or your property taxes. A budget is a simple piece of paper that you use to keep track of your income against your expenses. It also lets you plan for your future, with the purchase of a home, a car, or for your retirement. Additionally, a budget prevents you from spending all of your money, making it clear when payments are due and the money you need to cover them so that you keep your credit in good standing. 

It takes years to create a good credit score and, unfortunately, only a few late or missed payments to undo your efforts. The good news is that if you start to pay your bills on time and work towards reducing your debt, your credit score will begin to move in a positive direction.