Friday’s Credit Tip #17: Start Repairing Credit Right Away after a Big Financial Upset
A big financial problem is an emotional as well as a monetary burden. Plenty of people feel so terrible about their financial problems and so uncertain about their money that they go into deep denial, refusing to think or work on their financial problems. This will only make the problem worse.
Everybody suffers from financial difficulties once in a while and every professional in the field of finance, from loan managers to bankers, knows this. Plus, financial professionals, including lenders, want your business, and they are willing to work with you to help you solve your problems.
If you have had a financial problem, or if you are headed towards one, start working on repairing the situation right away. If your credit is suffering because you have not paid some bills, for example, don’t make it worse by waiting until you are reported to a collection agency (by which time your credit rating will have taken an even worse hit). Instead, work on paying off your bills or arranging a payment schedule right away.
Consider Using a Co-Signer for Loans
If you have very poor credit scores following a bankruptcy or other disaster but need to get a loan, consider getting a co-signer. If your co-signer has assets or a better credit record, you may qualify for a better loan rate.
Contact Your Banks and Ask for Your Credit Limits to Be Increased
Once you’re making progress on repairing your credit or you’ve got a few years of good history under your belt, it’s time to ask for your limits to be increased. Your credit utilization factor is also important to your credit history and score. That’s the part of your maximum available credit that you are using. For example, your credit utilization rate is 90% if you have spent $9,000 out of a possible $10,000 line of credit. That doesn’t look too good to a creditor. It looks as though you’re living on the edge and that alone will hurt your credit score.
What is the optimal credit utilization rate? Somewhere around 25 to 35%. In other words, if your maximum line of credit on a particular card was $10,000, your debt would optimally need to be around be $2,500 to $3,500.
What you want to do is get your credit utilization rate under control. If you have the cash, you should pay down your debt as quickly as possible or just pay it all off. It could take a couple of months for your credit score to rise. It should go up as long as you’ve got the rest of your credit history under control or you can ask the bank to raise your credit limits!
What About You
Have you had a big financial upset in your life? What steps are you taking to move forward? Are you focusing on repairing credit? Let us know in the comments!