Credit has a very important place in most people’s lives today. A good credit rating is essential for many of the things we do every day, such as, use a credit card, rent an apartment, qualify for financing for large purchase department store items, or buy a car, just to name a few.
If for whatever reason, you don’t make timely payments to a creditor or miss a payment, your creditor reports this to the credit bureau, and it is added to your credit report. If you do this too often, or default on a loan, you will have a bad credit rating and a low credit score. Once you have a bad credit rating, many doors will be closed to you: you will be unable to obtain most kinds of loans, and without a credit card you won’t be able to shop online, or rent a car or do many of the other things you have grown accustomed to doing.
For these reasons, it is important that you protect your good credit rating. However, if misfortune causes a change in your circumstances and your creditworthiness becomes an issue, you should begin your credit repair as soon as possible.
How to Repair Your Credit Rating
Credit repair is usually a slow process requiring you to build your credit rating little by little over a long period of time. Although you might consider going to a reputable company offering credit repair services, you can effectively repair your own credit.
A good place to start repairing your credit is to get your credit report from the credit bureau and examine it carefully for errors. If there are no apparent errors, you can then begin your credit repair.
First, obtain a secured credit card and use it regularly but sensibly. Pay your monthly installment amounts in full and on time. Secured credit cards are issued by companies that usually cater to people who have bad credit. These types of credit cards usually require that you give an initial deposit equal to the card’s credit limit. For example, you give the company $500 for a card with a $500 credit limit. They have the right to use that deposit against any balance you have that remains outstanding for too long.
Using this formula, the credit card company assumes no risk because you will never owe more money than they are holding as your deposit. Secured cards also require annual fees that regular credit cards do not.
Using secured credit cards and paying the bills on time is one of the best ways to improve your credit rating. You develop a history that shows lenders that you take your debts seriously, and that is what lenders want from you — to be paid in full and on time.
To your advantage, paying bills on time not only helps in establishing a good history for you, it eliminates late fees and other financial penalties that make paying your bills so difficult.