Financial Knowledge Online

If you have missed a few payments over the past 12 months, now may be the perfect time to begin repairing bad credit. Like most people, having a good credit score is important. Not only does it help me sleep better at night, it will also allow me to borrow money at a much lower interest rate. Since I am kicking around the idea of starting my own business, having access to cheap capital is even more crucial.

When someone has a good credit score, it shows lenders that they are financial responsible; a good risk so-to-speak. It tells them that you can handle the responsibility of debt. If you current credit rating is not where you want it to be, there are a few steps that you can do to begin repairing your bad credit rating. Here are a few simple things you can do that will positively impact your FICO score rather quickly.

Repairing Bad Credit 101

Start Paying Your Bills on Time Every Month

You would think that paying your bills on time each month would be obvious yet so many people fail to do even this. Once you miss a payment or two it is pretty easy to convince yourself that being late does not really matter. To be perfectly honest with you, however, it does.

When you charge something on your credit card, you agree to pay the minimum monthly charge, which includes a ridiculous amount of interest, by the due date each month. Don’t believe me? Pull out your credit card statement and check for yourself. You did read it, right? If not, you will definitely want to pour yourself a strong cup of coffee and read all about your ‘rights’.

As such, the right thing to do is to repay your obligations in the manner in which you agreed. This, obviously, starts with making a payment each month. Once you get into that habit, it becomes much easier; almost addictive actually.

Reduce Your Outstanding Debt

Now that you have begun making monthly payments to all of your creditors, it is time to start attacking these balances like there is no tomorrow. Some financial experts recommend paying down the balances that have the highest related interest rates; others recommend paying off the smaller balances first to help you gain a bit of financial momentum a la Dave Ramsey.

Regardless of which philosophy you subscribe to, reducing your debt serves two basic purposes. The first, and most important, purpose is to free up cash each month. After you have knocked out a credit or two you will be pleasantly surprised to find that your month does not run out of money as fast as it used to.

The second, and less obvious, purpose to paying down your outstanding debt is that you will have more available credit; which can actually help you build a good credit rating. I like to keep my revolving balance at less than 4% of my overall credit limit. Additionally, once I pay off a credit card completely, I do not cancel it unless it has an annual fee; then I drop that card like a bad habit.

Create New Credit Habits

The problem with repairing bad credit is that unless you change your underlying spending habits you will quickly return to your previous levels of bad credit. How many times have you heard about people winning the lottery only to be broke a few years later? If your financial knowledge does not improve, no amount of money will ever be enough to keep you afloat.

A good rule of thumb is that if you cannot afford to pay off the bill at the end of the month, you should not buy it. Making the minimum payments is no longer good enough. You need to grow up and start living within your means.

Despite the fact that these 3 tips are rather simple, they represent an easy way to get started repairing bad credit. Take each day as it comes and work on making incremental improvements. Before you know if, you will have a credit score worth smiling about.

Get Approved for a Low Interest Credit Card

Credit is something that is difficult to live without. It allows us to buy things that we simply could not afford if we had to pay for it in cash. While it is certainly true that most American families carry at least a small credit balance from month to month, some individuals have, perhaps, taken their spending a bit too far.

This happened to me when I was in college. All of a sudden I went from not having any money to having credit card companies fighting for the chance to lend me money. I thought I had hit the jack pot.

Seriously! How cool was it that I could buy something now and not pay for it until much, much later?

Unfortunately, credit card debt is not something that should be taken so lightly. In you are attempting to rebuild your credit after years of neglect, then you know how difficult it can be. With that being said, here are a few things you need to consider when you evaluate a credit card offer.

Credit Cards for People with Bad Credit

First of all, you need to realize that using credit cards is an expensive way to borrow money. The last report I heard had the average interest rate somewhere around 18 to 20%. Recent pressure has begun pushing this number down somewhat, but the interest rates are still entirely too high in most areas. As such, it is often a good idea to shop around before deciding on one credit card versus another.

Interest Rates and Annual Fees – Perhaps the easiest way to evaluate a credit card offer is to compare the available interest rates and annual fees for each card. What I generally do is simply multiply my outstanding balance by the stated interest rate for each card being considered. Let’s assume, for example, that I have an outstanding balance of $1,000. If the difference in the interest rates between the two cards is 2%, I could save around $20 per year by going with the smaller rate card.

Many people would stop here; which would be a big mistake. It is important that you take into consideration any annual fees that are charged by the credit card companies. In our example, let’s assume that the card with the smaller interest rate charges a $30 annual fee, while the other card does not charge anything. This may, of course, change your mind as to which card is the better deal.

Grace Period – Another thing that many people fail to consider is the grace period offered. The grace period is the amount of time in which you can pay your bill in full and not incur any interest charges (think free money). If you get paid on a weekly basis, having a credit card with a 30-day grace period may be much more beneficial that a card that has a 25-day grace period. The trend, unfortunately, is moving towards shorter, or completely eliminating, grace periods.

Transaction Fees – This is, perhaps, the fee that I hate most. Transaction fees are small fees that you are charged each time you use your card; whether you charge $1 or $1,000. I absolutely refuse to use a credit card that imposes transaction fees. I figure that they already get enough money from me in the form of interest charges; why give them more of my hard-earned money.

Additionally, you will need to consider whether or not the company charges over-the-limit fees if your outstanding balance exceeds your available credit. The best credit cards for people with bad credit do not hit you with ridiculous fees and penalties and typically agree to work with creditors; instead of seeing you only as a revenue source.

With that being said, the best credit cards for people with bad credit are those that have a low interest rate, no annual fee, and offer a 30-day grace period. Anything less than that can often make your financial situation worse.