The negative impacts of bad credit are extremely well-documented. The Balance
that bad credit is generated by bankruptcies, property repossessions, late payments, and other poor financial decisions. Individuals who suffer from bad credit are furthermore likely to be charged higher interest rates and higher security deposits. They may also be denied loans altogether or have apartment applications turned down. Nevertheless, with the right lifestyle changes, bad credit can be transformed into excellent credit.
Do Not Buy What You Cannot Afford
One of the most common causes of bad credit stems from the individual's decision to make purchases which surpass their budget. This could mean making excessive credit card charges or buying a house or car that one simply cannot afford. The consequences of living above one's means come in the form of paying interest, having property repossessed, and, of course, maintaining a low credit score.
To avoid this unfortunately common mistake, people must remember to
live below their means
. Just about everyone wants to have a fancy house and trendy car, but not everyone can afford these luxuries at the desired time. In the foregoing situation, putting money aside for nice things and gradually saving is considerably wiser than making unaffordable purchases and being stuck with the devastating financial consequences.
Make Payments In Full and On Time
Another common error which often breeds bad credit is the failure to pay charges in full by the time they are due. Unfortunately, many individuals believe that they only have to make the minimum payments. Of course, this theory is incorrect. People who only make the minimum payments on their credit cards will face considerable interest charges on top of the funds that are already owed. In certain cases, interest charges have been known to outweigh original charges.
Interest should be avoided at all costs. It can take decades to completely pay off and moreover serve as metaphorical dead weight for anyone who is striving to improve their credit score. Some of the best ways people can keep track of the amounts owed to credit card lenders are by keeping track of payments and even calling the credit card company to find out how much more money needs to be put on the card to avoid incurring interest.
Look Into Getting A Secured Credit Card
A secured credit card is very much like a regular credit card, however, there are some differences. For starters, secured credit cards generally require customers to make deposits which amount to half or all of their credit limit. For instance, individuals who want a secured credit card with a limit of $1,000 will be mandated to make a $500 or $1,000 deposit before the card can be used. The purpose of the aforementioned payment is designed to cover customers who fail to make applicable credit card payments.
Many secured credit cards do come with application fees, annual fees, and processing fees. Individuals should be aware of the foregoing fees prior to obtaining a secured credit card.
A Final Word
Transforming bad credit into good credit is a step-by-step process which requires time, discipline, and patience. It may not occur in one day, but people who adhere to the aforementioned suggestions will inevitably see their credit scores improve with time.
Authored by Gabrielle Seunagal