An underpublicized casualty of the sluggish economy over the past decade has been personal credit ratings. As wages fall and individuals and families struggle to pay bills, even one late payment can do a fair amount of damage to these scores. And this damage can spill over into every aspect of life.
Credit itself is typically the reason for many of these low scores.
“In reality,” says Don Brown, a financial services executive with MassMutual in Iselin, “there is very little in life that we need immediately that we need to put on credit. Most of what we buy on credit we could wait, save and pay cash for and eliminate paying interest over time.’’
Payment history comprises 35 percent of your credit score, so paying off outstanding balances in full is the quickest way to get your credit back on track. But since this may not be possible, Brown recommends identifying the credit cards and loans that carry the highest interest rates and make the largest payments on those.
To make these balances more manageable, contact your creditors about implementing a reduced payment plan. In addition, establishing automatic payment from a checking or savings account to ensure regular payments of these balances and gradually boost your credit.
Creating a strict – but realistic – household budget is essential to keep you on track to meet these payments. Sticking to this budget will likely result in using those credit cards less – and using 10% or less of your available credit will give your rating an added boost.
A small, but important, step in rebuilding your credit is to check your credit report for mistakes. Contact the three major credit reporting agencies –TransUnion, Experian and Equifax – for a copy of your current report. These reports are typically free of charge. Correcting any errors they may contain can help your score.
If you need more in-depth help, working with a credit counseling organization can be the way to go. But not all such agencies are reputable. A trustworthy credit counselor should provide free information about its services and not ask for details up front about your situation. Another red flag is an agency that promotes a debt management plan as your only option before it analyzes your situation. And it’s also advisable to check with your local consumer protection agency before you contact a specific counseling organization to see if it has any complaints filed against it.