Good Credit - Bad Credit

Good credit is a precious commodity. It takes us years of purchasing, borrowing, and paying timely to perfect the art of good credit. And once you have it, you should not want to do anything to cast a negative light on it.
Good credit could be characterized by a person having opened revolving twelve month credit to pay for their first mattress, and later financing their first washer and dryer through a store credit card, and a few years later having dealer-financed their first new vehicle on a five year note. Let's not forget the ten year repayment student loan that helped jumpstart this individual's career.

Throughout the years, this individual made periodic credit card charges for incidental items and for longer term payment items using more than one credit card. This individual, M. Goody, has paid all of his past and present credit responsibilities on time. Over the years, his credit limits have progressively increased. Also, he has retained a respectable number of credit cards and dollar amounts of outstanding credit and loan balances.

As time grows on, M. Goody is ready to purchase a home. His credit history now becomes an indicator of his likeness to repay the home loan and even calculates into his home affordability. The chosen loan company looks at M. Goody's credit report as well as his credit score. Having a score of 730 out of 850 is not bad. It is well within the very good range. Therefore, M. Goody can expect to receive the best interest rates available for his home loan. The exact amount he can afford to borrow for a home include additional criteria and is yet another story.

While M. Goody now has an opportunity to weigh the terms and cost of a loan with this home loan creditor, he should be aware not to solicit more than a couple of home loan creditors to inquire on his credit report. For every such inquiry reduces your overall credit score. And you want to retain the highest score possible.

What did we learn about M. Goody? Over the years, he built up the number of creditors, paid on time, and increased his credit limits. Having a respectable number of creditors shows he can properly manage the credit entrusted to him. Also, retaining older credit lengthens his credit history. Paying his credit on time shows he is trust worthy to lend money to. It also shows that he is actively managing his monthly bills. Increasing his credit over time allows M. Goody to show responsible use of higher dollar limits. It also shows a lender he is worthy for larger loans, specifically that he may be worthy of their financing his very first home.

Bad credit is easy to come by. All you have to do is get access to one or more credit cards, not pay on time, spend more than the minimum payments you can afford on a monthly basis, purchase a car you can't afford, and/or file bankruptcy.

There are millions of people in the U.S. who have done just what has been described above. Unfortunately, they have either not taken their credit seriously or have succumb to an unfortunate monetary event. In any event, credit is the basis of many criteria which dictates your borrowing power and certain coverage: from car loans, to home loans, to revolving credit, to car insurance rates. If you are one of the unfortunate, it is time to do sometime about it. There are ways to build and improve your credit.

Item 1. Start by organizing your bills. List your expenses. Remember you have household expenses such as food, toiletries, gas, etc. These need to be included along with your credit obligations. Set a budget amount to pay each expense. You'll want to pay off your outstanding credit balances as quickly as possible. This may take years but there's no time like the present to start. Pay at least some amount on all outstanding credit (if you can't pay at least the minimum, the creditor would rather have some amount than zero. See item 3 for more details). Focus higher amounts on credit cards with the highest interest rates first. Getting higher interest cards paid off first will free up more money to pay off other debts much faster.

Item 2. Do not attempt to get new credit, close any accounts that have a zero balance, and have your creditor reduce your credit limit where not needed. Attempts at new credit may inadvertently appear that you plan to continue bad spending habits. This will not help with credit negotiations. Closing any zero balances and reducing credit limits shows you will not attempt to unwisely use your available credit. It is wise, though, to keep at least one favorable (in good standing) credit card in case the creditors in negative standing decide to close your accounts at some point.

Item 3. Contact your creditors and negotiate a payment plan that is fair to you and equable to them. In every case it would be preferable to pay the minimums on all credit obligations. If you find this is not possible, do not hesitate to ask your creditor to reduce your interest rate and your minimum payment to improve your ability to repay the loan timely.

Item 4. If possible set up automatic bill payment from your checking account to pay some of your credit cards. This will improve your ability to pay your bills timely and should help establish a better standing with your creditor.

Item 5. Any extra cash that befall you, bonuses and cash gifts, use it to pay down on the higher interest rate credit cards. It is good practice to pay off as much as you can as soon as you can.

Item 6. Work diligently to clean up your credit report. You should start this effort as early as possible. It can take lots of work to clean up this act. Your credit report may contain erroneous and misleading information. Identify accounts that should be closed and ones that contain incorrectly recorded information.

Contact the three credit bureaus to get the information rectified. If the creditor does not properly rectify the issue within the specified timeframe, have the three credit bureaus remove the negative information. As you work through the inaccuracies, you should be left with only the credit that needs to be cosmetically repaired and/or paid off.

Paying on time and paying as much as possible, requesting the creditor to assign more favorable "pays as agreed" terminology to your account for any listed as "late," lowering your credit limits where necessary, reducing the number of active credit cards, and actively staying on top of your credit not behind it, over time will help increase your credit score and get you back on track.

It should be noted that filing for bankruptcy and having collections or tax liens reported against your credit report is the least optimal "bad credit" situation you can be in. The steps above can start you on your road to recovery but will not remove the wounds that will be inflicted. Bankruptcy can appear on your credit report up to ten years, where as tax liens and collections stay on for seven. That's quite a number of years to wait before you get back on your feet. Regardless, it's worth your while to repair the damage and as soon as you are ready to rebuild your credit, find a credit-building vehicle that will jumpstart you on your way.

Find a credit card that allows you to charge products and services, with no credit check, you're approved regardless of credit history, and has credit limits up to $10,000. Many of these credit cards have no annual fee. Get started moving your credit in the right direction. And remember pay on time and don't over-extend yourself.

Favorable Tip:It is a good idea to acquire your credit report periodically, at least once per year. Under Federal law, you are entitled to one free report per year from each of the three credit bureaus. Access your free credit report online or contact each of the three credit bureaus directly: Experian, Equifax, and Trans Union.