Bad credit can happen to anyone. It does not mean that you are a bad person or that you are irresponsible. There are any number of reasons that you can find yourself with negative marks on your credit. Lenders, however, see bad credit as increased risk. You are far more likely to be rejected for loans and credit lines when you have bad credit. There are some credit card companies that specialize in providing lines of credit to those with less than stellar credit ratings. Before you sign up, there are a few things that you should consider.

Avoid signing up for credit cards that you do not qualify for.

Every time a credit card company pulls your credit. This shows on a credit report and has a negative impact. Do not waste time applying for cards that you know you do not qualify for. All that you are doing is hurting your credit and wasting your time.

Pull a credit report on yourself.

You can use this to find out if you qualify for a credit card before the application process is even started. When you see an offer that interests you, contact the credit card company and find out what credit rating is required for a specific offer. They may be able to inform you if you would qualify at a specific credit rating.

Do not wait for offers to come to you.

Be proactive and contact different, well established, credit card companies. When you have your credit rating, you can check to see if they have a credit card offering that fits your needs and your credit situation. This limits the risks of being drawn in by predatory lenders.

Look for reviews on the company offering the credit line.

These can be found online or through credit counseling groups. You may find that some companies are better for bad credit borrowers than others. You may also find companies that practice predatory lending. Arming yourself with this information can save you from lenders that may not have your best interests in mind.

Compare the offers.

Review and compare the different offers to make sure that you have the right one to fit your needs. Pay very close attention to fees, charges and interest rates. Federal regulations mandate that all credit card companies disclose this information to consumers. If you have questions or difficulties, make sure to ask questions. Only by comparing different credit card offers can you find the one that can help you get the credit that you require, even with bad credit.

Of course, always make sure that you fully read the information on the card. Federal regulations require that credit card companies disclose all fees and interest rates. Make sure that you fully understand the cost of owning the card.

Following several years of very strict lending, several lenders and banks across the country have begun to open up their wallets and make it simpler for consumers to get approved for unsecured personal loans. According to SmartMoney.com, TD bank has reported a 6% increase in the amount of personal loans issued in 2011 while SunTrust Bank reports a 25% increase!

In addition to introducing less rigid credit requirements that will enable individuals with poor credit and high debt amounts to achieve approval, banks are also trying to entice applicants with good-excellent credit by offering lower interest rates. For example, in March of 2011, US Bank introduced unsecured personal loans with interest rates beginning @ around 9%, lowered from the previous starting point of 13%. The amount of loans serviced since have more than tripled.

Proof of income is still a requirement for all applicants of good and bad credit. And those with higher credit scores/rating in conjunction with minimal debt amounts are still considered ideal candidates with approval being likely, accompanied with favorable rates and terms. If you are able to receive an approval, the interest rates you receive will heavily depend on your ability of being able to pay the loan back timely. Interest rates are fixed, but if you fall behind on payments, you are going to incur late fees…which can end up being pretty costly at $20-$50/pop. If you neglect to make your payments, your account will be handed over to a collection agency which can equate to being sued in court. You don’t want to go this route. Therefore, don’t apply for a personal loan if you do not think you will be able to satisfy payment obligations.

Loan amounts offered by the majority of lenders are still pretty generous. Wells Fargo comes in at top, enabling consumers with excellent credit to apply for personal loans for as much as $100,000. Capital One is currently offering maximum borrowing amounts of $25,000 and OneMain Financial (formerly CitiFinancial) $10,000. And then you have online only loan providers like Choice Personal Loans that service the entire country, offering good and bad credit loans for as much as $150,000.

It is very important to note that being able to obtain easy credit also has its downside. For instance, many consumer advocates contend that these types of loans invite consumers to spend money that they should be saving. Choice has reported that many of their clients utilize their loans for buying large-ticket merchandise like flat-screen televisions, stereos, etc.. These types of purchases are not satisfying life’s necessities and should be carefully evaluated before proceeding. It is also common for borrowers to use the funding they receive for paying off high-interest credit card debt.

Unsecured personal loans are an excellent financing option, if used properly. They not only help satisfy unexpected financial crisis, like paying for doctor bills or home repairs, but can help you save money by paying off balances on high-interest credit cards. In addition, eliminating credit card debt will also help improve your credit score and rating since the carry on an unsecured loan is not as much of an impact on your credit.

image by images_of_money

If you have bad credit right now, you probably already know it’s no way to live. These days, bad credit doesn’t just influence your ability to get approved for credit cards and loans.  It also affects your insurance rate, whether you get approved for an apartment lease, and can even prevent you from getting a job. So if you have bad credit, fixing sooner rather than later is key.

1. Start by checking your credit.

You won’t know what’s causing your bad credit until you check your credit history. Your credit report is the document that holds your credit history and your credit score is the number that evaluates your credit history.

You can check your federally-mandated free credit report by visiting AnnualCreditReport.com, the only truly free source to get all three of your credit reports. Credit scores typically must be purchased through credit bureaus or myFICO.com, though you can sign up for the free trial and cancel within a few days to avoid the charge. Once you have these two items, you can tell just how bad your credit score is.

2. Dispute errors on your credit report.

Because mistakes can and do happen, you should review your credit report for accuracy. Any errors can be removed by letting the credit bureaus – Equifax, Experian, and TransUnion – know about the error. Dispute errors with the credit bureau that provided that report online or by writing to the credit bureaus.

3. Pay off past due accounts.

Any account that’s not current and paid as agreed, is affecting your credit score. Late payments have a big impact on your credit score. Getting caught up on your payments won’t remove them from your credit report, but it will keep them from hurting your credit score further. Late credit card payments and debt collections are two types of past due accounts you should take care of.

4. Get new credit.

You’ll have a hard time improving your credit score as long as the negative information on your credit report outweighs the positive information. You can add new positive accounts be opening new credit cards as you can afford them. If you have trouble getting approved for a credit card, consider a secured credit card which is a type of card that requires you to make a security deposit in the amount of your credit limit. In all other ways, the secured credit card is just like a regular credit card.

5. Pay your bills on time.

Timely debt payments are key to building a better credit score. Not only should you pay your credit cards and loans on time, you should pay all your bills on time. Any account that goes past due long enough can reported to a collection agency and added to your credit report. Collections hurt your credit score less as they get older so any new collections will hurt the progress you’ve made with your credit score.

The good news is that negative information can only stay on your credit report for seven years (or 10 years for bankruptcy). Additionally, negative information doesn’t have as much of an impact on your credit score as it gets older. Continue to pay your bills on time and correct any credit-damaging habits and your credit score will improve over time.

This has been a guest post by Ed O’Brien is a writer in personal finance, specializing in credit repair. You can find more of his articles located at CreditRepair.org.

There are so many scams out there that claim to be able to fix or repair your credit. Many of them will actually charge you an outrageous fee and pretend to wipe all negative information from your credit report. Finding and fixing problems with your credit is easier than it seems. Learn how to increase your credit score with these simple, yet effective techniques.

How To Increase Your Credit Score:

Get A Copy Of Your Credit Reports

Before you can improve your credit score, you need to know exactly what makes up that score. That is why the first step in this process is to request a copy of your credit reports. We can’t look at how to increase your credit score without first seeing the details!

Although there are many credit bureaus, you really only need to focus on the three major players (Equifax, TransUnion, and Experian). Everyone is entitled to one free copy of their credit report from each of the 3 major bureaus each year. Simply go to AnnualCreditReport.com (this is the official site…don’t fall for those other emails and pop-up ads) to request free reports from each of the three credit bureaus.

One thing to note, is that you are only entitled to see a copy of your report for free, if you want to see your score, then you’ll have to pay a small amount (around $7 or $8 for each report).

Dispute Any Errors

Once you have a copy of each of your credit reports, check them thoroughly for any errors. If you find an error on your credit report, you have the right to dispute it.

This would mean writing a detailed letter to the credit bureau, explaining what the error really is, and requesting an investigation. Annual Credit Reports makes this entire process really easy.

When exploring how to increase your credit score, this is one of the easiest ways to have a huge impact.

Pay Your Bills On Time

Your ability to pay bills on time makes up 35% of your credit score! This is why having just one late payment reported to a credit agency, can be detrimental! Make sure that if you are already late on a payment, you become current as soon as possible. If your late payment was made recently, call your creditor and ask (or beg) them to forgive your tardiness – this will help you to avoid the late payment fees as well as the hit to your credit score.

If you already have a late payment on your report, the best thing that you can do is to be current on all your accounts from now on. The further away in the past your delinquent payment is from today, the smaller the negative impact on your finances.

Pay Down Your Balances

Having balances that are close to your credit limits does damage to your credit score. The amount of debt that you have constitutes 30% of your score!

Look through all of your accounts and immediately pay down any one of them where your debt to credit limit ratio is more than 30% (this would be more than a $300 balance on a $1,000 limit). Once you have done this, then go through the same exercise, but this time aiming for 10%.

If you are looking to have a sudden impact on your credit score, this is probably the best way. It may require a huge sacrifice (like a temporary 2nd job, or selling some of your “stuff”), but it probably be worth it.

Don’t Close Old Accounts

The age of your accounts also has an impact on how creditors view you. The more “old” accounts on your report, the better your credit score will be (holding all else equal).

This means that you must try to keep open old accounts – even if you don’t use it anymore. Actually, you may want to get a little use out of your older credit cards – buy a tank of gas each month and pay it off right away – this way, they won’t be tempted to cancel your account due to inactivity.

Don’t Apply for New Accounts

Another implication of account ages, is that you should avoid opening any new accounts (with possible exceptions…see below). This is because once you get these accounts, they will bring down the average age of your credit!

Also, every time you apply for credit the bank has to pull your credit report, which is noted as an inquiry. These types of inquiries will reduce your credit score, and they account for 5% of the total. So even if you see a bank offering great credit card benefits, don’t apply!

Take Out An Installment Loan

Most of us – especially when we’re young – tend to focus solely on revolving credit (such as credit cards). However, banks and other lenders like to see how you handle installment loans as well. These are typically mortgages, auto loans, student loan repayments, and personal bank loans.

I remember when I tried to borrow money to buy a car when I was younger. I was told that I couldn’t get a loan for a used car because my credit score was too low. To me, this didn’t make sense because I handled my credit cards very responsibly up to that point. However, they then explained to me that since I didn’t have an installment loan, my credit score still wasn’t as high as they wanted.

So, I had to buy a new car in order to qualify for a loan – I actually needed a cosigner in order for everything to go through.

If you are in a similar situation, then try to take out a small personal loan from your local credit union or small bank – they are usually easier to work with – then be faithful to pay it back on time. Your credit score should see a nice improvement after this.

Reader Questions

1. What things have you done to increase your credit score?
2. Have you ever been denied a loan because you haven’t borrowed enough in the past?
3. Do you think we should focus on our credit score as much as we do?

This was an original post I did on credit card mistakes at ChristianPF.com.  I’ve adapted it a little for my site.

We all make mistakes, it’s in our nature. 

Sometimes we make them because we don’t know any better – other times we make them even though we do.

Most of us have made pretty big flubs with the plastic – I know I have - so it’s always good to get some helpful reminders on handling credit cards so we can avoid mistakes and eliminate credit card debt.

You can definitely get out of credit card debt completely by avoiding some of these credit card mistakes:

Not Realizing You Have Credit Card Problems

Okay, this sounds silly, how can you not recognize that you have credit card problems? 

Here’s how: 

I spent the majority of my college years and shortly after living the high life without any regard to the thousands of dollars I was racking up!

I spent the rest of the time out of college trying to eliminate my credit card debt!

I didn’t even realize that I had a credit card problem.  I just figured this was a normal part of existence and that once I made more money, then I would pay off that debt! 

No big deal right?

Little did I realize that I needed to make some drastic changes!  Get real with yourself and ask if you’ve got some spending issues.

Credit card debt help comes in the form of helping yourself first and realizing you have a problem and need to eliminate debt!

Not Paying Attention to Due Dates

This recently happened to me.  I got my email notification of the statement, logged it in the back of my mind that I needed to pay that bill and unfortunately got busy and never bothered to pull that statement out of the back of my mind until two days after the bill was due.  I plain forgot!

I know what you’re thinking – just automate your bill pay! 

Yes, I should do that, but I do like  to take a look at what’s on the statement and make sure everything’s correct.

This kind of forces me to do that. 

Making a late payment even if it is only by a few days can rack up ridiculous charges that only compound your debt. 

Those annoying charges can also have an impact on your credit scores. 

Being vigilant about paying your debt and paying it on time is key to eliminating your credit card debt.

Not Paying Your Bill in Full Each Month

This is where it all begins doesn’t it?  You’re a willing victim to the crazy cycle. 

You buy something you can’t afford and think, “I get paid in two weeks, I’ll just put it on the credit card and as soon as I get the bill I will pay it off” and then something else comes up. 

Emergencies happen or you find some other trinket you want to buy and you put that on your credit card too.  At the end of the of the month you receive a hefty bill. 

What do you do? 

If you only pay what you can and wind up leaving a balance on the card that accrues interest at insane amounts, you’re asking for trouble and perpetuating the cycle! 

Just think, with a little discipline and some self control you could’ve avoided unnecessary spending and used that money to open a Roth IRA or fund some other type of investment account.

If you want to eliminate your credit card debt, you must stop adding new charges and begin paying your bill in full each month.

Not Negotiating With Credit Card Companies

It puzzles me that more people don’t call their card companies to ask for credit card debt help.  

What I mean is that you can negotiate things like interest rates, late payment fees or even payment plans.  

If nothing else, it doesn’t hurt to give them a call and find out what they can do for you. 

The person who never asks, never receives.  Now of course there is no guarantee that the credit card company will do anything, but wouldn’t it be nice to know if they were willing to do something?  

Eliminating credit card debt is not easy, but don’t make it harder on yourself by making simple mistakes that can easily be avoided.

Other Tips?

Readers, what other tips would you offer to eliminate credit card debt?

Want to know how long it will take you to pay off your credit cards?  Check out my Credit Card Payoff Calculator!

Credit Card Payoff Calculator

Have you ever wondered what your credit card payoff would be? 

In other words, how long will it take at your current rate and payment to payoff credit card debt!?

Some of us probably don’t want to know because we don’t want to get depressed. 

But it’s actually a good idea to see what exactly you need to do to get rid of that credit card debt faster!

I stumbled upon a mortgage site that has a ton of calculators to use, so below you’ll find one that I thought might be helpful in calculating your credit card payoff.

Before you jump right in, consider these three reasons why you should calculate your credit card payoff:

To Get a Reality Check on Your Credit Card Debt

I remember back in college when I first started making credit card mistakes and racking up debt I had a relaxed attitude towards it.  It just wasn’t a big deal for me – that is until I started getting deeper and deeper in debt.

I needed a reality check on my current situation to understand the devastating affects of credit card debt!  Seeing how long it will take you to payoff credit card debt will give you that reality check!

To Motivate You to Payoff Your Credit Card Debt

Hopefully what that reality check will do is then motivate you to start getting rid of credit card debt faster!  Getting “gazelle-like-intensity” as Dave Ramsey likes to call it!

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To Help You Understand the Dangers of Credit Card Debt

Credit cards are wild beasts that need to be tamed!  Do you believe that?  They really are. 

If you’ve got a relaxed attitude about your credit cards and don’t really seem to care (like many people I talk to) you need a quick wake up call to see the dangers of credit card debt!

So go ahead, type in your situation in the Credit Card Payoff Calculator below and see what your credit card payoff really is!

What Is Your Credit Card Payoff?

Care to share your results with us below?  Let’s motivate each other to pay off those credit cards!!!

Times are tough!

Income is down, expenses are up and cash flow is tight.

It’s very tempting to skip out on a debt payment or a credit card bill to help free up the cash flow a bit, but are you sure you realize the impact that decision will have on your credit score?

The Spend on Life team had a great post and graphic the other day that showed how your credit score drops significantly the longer you go without making a payment – so make sure you are staying current with your bills!

In other words, Don’t Flush Your Credit Down the Drain!

SpendOnLife.com is an online resource dedicated to helping consumers achieve healthy credit.  Credit ratings are extremely important for qualifying for low interest rates on new loans and lines of credit.  

SpendOnLife.com provides you with up-to-date, accurate information and advice about credit reports and scoring.  Check ‘em out.

What Should You Do If You Can’t Pay Your Bills?

Every situation is different, but here are a few tips to help:

• Call your creditor – make them aware of your situation - many times they can work out a plan with you.
• Pay something – Even though you can’t pay the whole bill, paying anything shows the creditor you are committed to paying your debt.
• Seek help – There are some reputable places and agencies that can help you, just be careful. 
• Commit to getting out of debt – Yes it’s painful for a while, but in order to get out of this mess you have to stop spending. 

Financial difficulties like recessions, job layoffs or reduced salaries have a way of revealing how important it is to build a financial safety net.

Having funds available for emergencies helps weather the inevitable storms of life and can get you through some difficult circumstances without incurring credit card debt.

Here are some things to consider when establishing your emergency fund.

How much is enough?

Generally speaking, most financial advisors will recommend you have at least three to six months worth of expenses in a cash reserve.

Depending on your situation you may want more.  For example, if you have a commission-only job and your income fluctuates or you have a seasonal job where your income is low for a few months out of the year it might be wise for you to establish a larger net.

How do I begin establishing a cash reserve?

If you find your reserves are a little anemic, consider these steps to start the process:

1. Take inventory of your monthly expenses.  Multiply this number by your desired reserve (i.e. 3 months, 6 months etc)
2. Make a budget so you can begin to “trim the fat”.  Cutting back on unnecessary expenses will free up extra cash that can be saved into your reserve.
3. Get creative on making additional money.  Sell your old “junk” on ebay, or have a garage sale.  Use these proceeds to start building your emergency fund.  My wife and I have made some extra money these last few years by selling our old cell phones, clothes and more on ebay.
4. Save aggressively into a savings account.  There are many great accounts out there.  Bob at ChristianPF has a post on the 10 reasons why he loves ING.  If you like using local banks, I suggest calling around to find out who is offering the highest interest.  Otherwise if you are comfortable with online banking then check out bankrate.com.  They allow you to search the highest yields at banks both locally and nationally.
5. Don’t dip into your reserve unless absolutely necessary.  One of the biggest mistakes people make in setting up cash reserves is a false sense of now “having money to spend”.  Stay focused on the task at hand.  After you’ve built up your cash reserve feel free to reward yourself.  Just remember this money is for a safety net.

I built up my cash reserves – now what?

Once you’ve reached your goal for your cash reserve it’s time to get strategic about earning the most interest.

I usually recommend a Three Tier Cash Reserve System to help keep the funds liquid and yet earn a higher rate of return.

A three tier cash reserve basically utilizes a checking account, a money market and a short term CD Ladder.

Tier 1

Tier 1 consists of your checking account.  It acts as your revolving door, meaning  funds come in and go out on a regular basis.

Since most checking accounts pay nothing, you want to keep no more than one months worth of expenses here.

Tier 2

A money market fund is designed to provide a safe place to invest short term liquid assets.  They typically generate a higher interest rate than a savings account.

If you are using a three month reserve you’ll want to keep about a months worth of expenses here and about two to three months worth if using a six month reserve.

Tier 3

A short term CD Ladder is essentially a 12-month CD bought each quarter or four total.  Divide the remaining amount of your reserve by four and buy a 12-month CD.  In three months do the same thing and so on.  Remember to always look around the best best CD Rates before you make any final decision.

If you fast forward one year from now, you will have a CD coming due every three months in case of a major emergency and need to access the funds.

Theses ladders can be structured in various ways.  For example, you could buy a 3, 6, 9, & 12-month CD all at once if your bank offers those terms.  You could also buy 12, 24, & 36-month CDs to ladder your funds.  I am a big fan of the 12-month CDs for two reasons:

1. They typically offer higher interest than the shorter term CDs
2. You don’t have to lock up your money for a longer time period.  Since this is a saftey net, you don’t want to be in a position where you are cashing out a longer-term CD early and incurring a penalty or forgoing interest.

Set Targets and Avoid Discouragment

Don’t be discouraged if you are not able to get your cash reserve set up like this yet.  The key is to stay focused on saving your money so that you can get your emergency fund where it needs to be.

Set a target for yourself of when you’d like to achieve this goal and also set little goals along the way (i.e. saving your first $1,000, getting Tier 2 set up etc.).

Be sure to reward yourself along the way when your goals are met so that you can stay motivated and positive.

Saving for Emergencies or Paying Down Debt

Inevitably a question will come up from time to time about whether it is smarter to save into an emergency fund or pay down credit card debt?

I like Dave Ramsey’s “Baby Steps” idea when faced with a question like this.  What he usually recommends is that you save $1,000 into an emergency fund first and then start paying down your debt.

You can worry about building up your Three-Tier Cash Reserve once you have your debt wiped out.

Resources To Help

• Bankrate.com - compare interest rates on savings, money markets and CDs from banks across the nation.
• Dave Ramsey’s Baby Steps

Fix Your Credit Score By Applying These Tips!

With credit playing “hard to get” during this most recent economic downturn and lenders raising their standards for doling out cash, it’s more important than ever to boost your odds of getting a loan with a good credit score.  

Here are five tips to help fix your credit score and give you a greater chance of getting that cash you may need.

A. Annual Check Up

Getting an idea of what your credit score is has become so much easier now with government legislation that gives everyone the right to request one free credit report each year. 

I highly suggest visiting annualcreditreport.com to request your free copy.  Knowing where you are will help determine your next steps.

B. Be Punctual

This is so simple, yet it’s amazing that many folks think being a couple weeks late on their payment is no big deal as long as they are paying something. 

According to CNN Money, ”someone with an average credit rating of 707 can raise their score by as much as 20 points by paying all their bills on time for one month.” 

C. Clean Up Errors and Old Information

Check your report carefully to see if there is any outstanding information that shouldn’t be showing up. 

Perhaps an old doctor bill or credit card still shows a balance.  You’ll want to check for accurate credit limits from your card issuers as well. 

You can fix your credit score typically by taking care of these things with a phone call to one or more of the reporting agencies. 

Experian – 888-397-3742
TransUnion – 800-916-8800
Equifax – 800-685-1111

D. Don’t Close Old Accounts

This may seem counterintuitive, but closing old accounts will not fix your credit score it will generally hurt it.

This is because the reporting agencies want to see a nice long history of using credit.  According to Fool.com, “lenders take a hard look at the ratio between the balances on your revolving accounts and your total available credit. If you do have debt, try to keep it to less than 30% of your available credit.”  If you start closing your accounts, your debt-to-available-credit ratio goes up and impedes your score.

E. Eliminate Debt

As mentioned, lenders typically like to see a debt ratio of 30% or less. 

No debt would be ideal!  Get serious about improving your credit score by getting serious about eliminating debt, especially paying down those credit cards. 

Managing your debt responsibly will help boost your score tremendously.

 Breakdown of How Credit Scores Are Calculated:

Improving and fixing your credit score won’t happen over night, but with simple discipline and some practical steps you can start seeing improvement in a very short time.

Your debt may be costing you more than you realize especially if you are making these 5 mistakes.  Paying off your debt is a battle you can win by bypassing these blunders:

1. Not paying the bill in full each month

This is where it all begins.  You buy something you can’t afford and think to yourself, “I get paid in two weeks, I’ll just put it on the credit card and as soon as I get the bill I will pay it off” and then something else comes up.  Your brakes go out, your washer quits working  or you find some other trinket you want to buy and you put that on your credit card too.  At the end of the of the month you receive a hefty bill and only pay what you can and wind up leaving a balance on the card that accrues interest at insane amounts. Creating a budget will go a long way in helping to avoid this problem.

2. Only paying the minimum payment

If you are paying only minimum payments on your debt, your credit card companies love you and you should be getting Christmas cards from them each year.  Paying the minimum payment will basically ensure that it will take a lifetime to pay off your debt.  You must pay more than the minimum if you want to get anywhere with your bills.

3. Not paying attention to due dates

This is easy to do because we are busy people, but making a late payment even if it is only by a few days can rack up ridiculous charges that only compound your debt.  Those annoying charges can also have an impact on your credit report.  Being vigilant about paying your debt and paying it on time is key.

4. Not paying attention to the interest paid

If more people understood how much interest they are paying to their card companies each month in interest alone, perhaps they would make a greater effort in getting these debts paid off.  Matt Jabs at DebtFreeAdventure.com takes a revealing look at his own interest payments for the month and shows how interest destroys your ability to build wealth.

5. Not negotiating with the card companies

It puzzles me that more people don’t call their card companies to negotiate with them.  You can negotiate things like interest rates, late payment fees or even payment plans.  If nothing else, it doesn’t hurt to give them a call and find out what they can do for you.  Bob Lotich at ChristianPF.com tells about his experience in  negotiating with credit card companies. 

Getting out of debt isn’t easy, but don’t make it harder on yourself by making simple mistakes that can easily be avoided.