Compare Lenders
- Compare at least three different lenders for loan and credit card terms.
- If you have existing high-cost balances, try to negotiate a discount from lenders (such as 12 percent credit card interest instead of 18 percent) or transfer balances to cards with lower interest rates and fees.
- Pay credit card bills promptly to avoid late fees and to reduce the average daily balance on which interest is charged.
- Try to pay credit card bills in full each month or, at least, pay more than the minimum. Otherwise, it could take decades to repay what you owe. For example, a $5,000 balance on an 18 percent credit card will take 50 years and cost $14,262 in interest to repay if only the 2 percent minimum payments are made.
- Use credit that matches your repayment style: low-interest loans or credit cards for partial payments and no-annual fee cards with grace periods for balances paid in full.
Watch Your Debt-to-Income Ratio
- Keep your consumer debt-to-income ratio at or below 10 percent to 15 percent of take-home pay. For example, if you take home $3,000, owe $300 a month for a car loan, and pay $150 on credit cards, your debt-to-income ratio is 15 percent ($450 divided by $3,000), so further debt should be avoided.
- Another credit “maintenance” task is to check your credit report annually for errors and evidence of identity theft. Annually, credit reports are free to consumers upon request. Check the Web site www.annualcreditreport.com for details.
- Find out your credit score, which is a three-digit number ranging from the 300s (lowest) through 850 (highest), according to Fair Isaac. If you’re applying for a car loan or mortgage, your lender can probably tell you your credit score for free. Otherwise, expect to pay a modest fee.
- Make a list of your credit cards, including account numbers and the toll-free number and address of card issuers. Keep this information with your financial records in case of loss or theft.
- Keep a file of credit card interest and fee disclosure information for future reference.
Repair Poor Credit
- To repair a poor credit history, obtain a small secured bank loan or a secured credit card in which personal savings are deposited to guarantee the credit line. Repay this debt promptly to build a history of on-time payments.
- Negative information generally can be reported for seven years. Information can be reported for 10 years and will be less damaging as time passes.
- Do not hire a credit repair firm that promises to make past credit problems disappear. They cannot do anything for you that you can’t do for yourself (plus, some of the actions they suggest may be illegal).
Compare Lenders
- Compare at least three different lenders for loan and credit card terms.
- If you have existing high-cost balances, try to negotiate a discount from lenders (such as 12 percent credit card interest instead of 18 percent) or transfer balances to cards with lower interest rates and fees.
- Pay credit card bills promptly to avoid late fees and to reduce the average daily balance on which interest is charged.
- Try to pay credit card bills in full each month or, at least, pay more than the minimum. Otherwise, it could take decades to repay what you owe. For example, a $5,000 balance on an 18 percent credit card will take 50 years and cost $14,262 in interest to repay if only the 2 percent minimum payments are made.
- Use credit that matches your repayment style: low-interest loans or credit cards for partial payments and no-annual fee cards with grace periods for balances paid in full.
Watch Your Debt-to-Income Ratio
- Keep your consumer debt-to-income ratio at or below 10 percent to 15 percent of take-home pay. For example, if you take home $3,000, owe $300 a month for a car loan, and pay $150 on credit cards, your debt-to-income ratio is 15 percent ($450 divided by $3,000), so further debt should be avoided.
- Another credit “maintenance” task is to check your credit report annually for errors and evidence of identity theft. Annually, credit reports are free to consumers upon request. Check the Web site www.annualcreditreport.com for details.
- Find out your credit score, which is a three-digit number ranging from the 300s (lowest) through 850 (highest), according to Fair Isaac. If you’re applying for a car loan or mortgage, your lender can probably tell you your credit score for free. Otherwise, expect to pay a modest fee.
- Make a list of your credit cards, including account numbers and the toll-free number and address of card issuers. Keep this information with your financial records in case of loss or theft.
- Keep a file of credit card interest and fee disclosure information for future reference.
Repair Poor Credit
- To repair a poor credit history, obtain a small secured bank loan or a secured credit card in which personal savings are deposited to guarantee the credit line. Repay this debt promptly to build a history of on-time payments.
- Negative information generally can be reported for seven years. Information can be reported for 10 years and will be less damaging as time passes.
- Do not hire a credit repair firm that promises to make past credit problems disappear. They cannot do anything for you that you can’t do for yourself (plus, some of the actions they suggest may be illegal).