Avoiding Bad Credit

Whether you are recovering from bad credit or trying to avoid negative effects to your credit score, there are a few simple guidelines that you can apply to your finances in order to have a healthy credit score.

Build Your Credit and Job History

When buying a home, creditors who will offer you loans will look at the length you have had your job and length of credit history. In most cases, you will want to have worked at the same job for several years in order to use that income for your loan. Similarly, creditors will want to see that you have had positive history on any credit card lines or loans for several years.

Keep Minimal Credit Card Balances

A good rule of thumb when it comes to your credit cards is to never have a balance that is more than fifty percent of the available credit. There is no harm in using your credit cards. However, you will want to make sure that you can pay these down fairly quickly. Maybe you want to make a larger purchase now and expect to have the funds in cash within thirty days. This situation is perfectly acceptable. However, many find it tempting to not pay off that credit card balance once the cash comes into your account. It is crucial that you pay off this balance and commit to keeping your balance down.

Be Careful Who Gives You Loans

Don’t be overly anxious to apply for just any credit card. There is a group of credit cards that are considered “sub prime credit cards.” These are credit cards generally marketed to those with low credit scores or negative credit history. These types of cards can be tempting to apply for when you are in these situations. However, these cards are not the optimal choice for those looking to build their credit or stay out of credit trouble.

Keep a Close Eye

Several times throughout the year, you will want to check the contents of your credit report and your credit score. This is a way of keeping an eye on what is being reported, and if that information is correct. Credit agencies sometimes create errors that could negatively affect your score, which is key to getting a favorable mortgage or other loan rate.

Use Cash as Much as Possible

Credit cards can be tempting to stash balances that end up hurting your credit. Consider taking a break from even having credit cards available. This doesn’t mean you can’t have a credit card at the ready for emergencies. However, in your mind, it shouldn’t be an available option for regular spending. This will force you to use cash for all of your purchases. Studies show that people spend less when forced to use cash for every transaction. Because you see your bank account balance going down instead of credit card charges racking up, you will find yourself being more aware of what you are spending. In fact, you can choose to actually have cash in hand versus just swiping your debit card at the checkout.

Set Goals and Budgets

No matter what your income level is, you need to set a budget. Part of your budgeting will need to allow for consistently making payments to any debt you have while still adding a good percentage to your savings account. The more you can pay down your debts, the better. This means making extra payments if this is something you can afford. By making extra payments or multiple payments throughout the month, you will achieve credit management and save yourself some of the cost of the interest on the loan.

To have success with your budget, you will need to outline what financial goals are important to you. This should include goals within short and long time periods. You might have a goal of buying a house in twelve months; paying down one credit card at a time during that period may be important for your goal. Without goals, other purchases might tempt you into spending your hard-earned money on something that doesn’t get you closer to your goals. Your budget and goals will help you achieve your dreams.

Sacrifice Now, Reward Later

Are there things you can live without? Dig deep to find spending cuts that will help cushion your savings account. Although having a great credit score is half the battle, the other half is to be able to afford the mortgage costs, first monthly payment, and any miscellaneous needs for when you move into your new house. Consider using a TV antenna and movie streaming services instead of paying for a high cable bill each month. How about a roommate to shoulder the monthly expenses? If you can find a way to enjoy your time while making compromises like having a roommate, you will certainly be rewarded with a higher quality experience as a homeowner. Once you own a property and have a desire to make it yours, you will be thankful for all of these little sacrifices that added up to a big reward.