We all start out with no credit, a clean slate in a way. Every credit move you make from the time you open your first account will either move you towards good credit or bad credit.
Most people can avoid bad credit by simply making the right choices with credit and other financial accounts. So, with that said Moolr will now take you through a few steps to avoid having to take out a bad credit loan.
Pay your bills on time each month. This is the number one thing you should do every single month to avoid bad credit. Payment history is the number one factor affecting your credit score. This means it is no wonder that missing payments can devastate your credit score. A single late payment can rapidly drop your credit score by several points and consecutive late payments can lead you to situations such as foreclosure, repossession, charge-offs, and collections.
Credit Agencies & Agencies
This applies also to accounts that aren’t usually reported to the credit bureaus, like a cell phone bill or electricity service. When you fall too far behind, the account may be sent to a collection agency and that will almost always be listed on your credit report. Even something as simple as a library fine can hurt your credit score.
Know which bills report to the credit bureaus. There may be months that you are strapped for cash and you simply can’t pay everything. Unfortunately, you may have to pay some bills and skip others. Protecting your credit score means staying current on all the bills on your credit report – credit cards, loans, mortgage, etc.
That is not to say that you should ignore your other bills, because left unpaid, even those will eventually take a toll on your credit. If you have to skip a bill, have a solid plan for getting caught up.
Do not take on too much debt. Your level of debt is the second biggest factor that influences your credit score.
Credit Scores
Credit scores not only consider the amount of debt you have overall but also how your credit card balance compares to your credit limits. Reports analyse how loan balances compare to the original loan amount. Keep your credit card balances low and make your regular loan payments to reduce the amount of debt you have.
The amount of debt you have can also affect your payment habits. Too much debt can make it difficult to make your monthly payments causing you to miss payments. Recognise the signs of having too much debt and reduce your credit card spending before you get in over your head.
Budgeting
Get good at managing your money. If you are bad with money, you will also have trouble making your credit and loan payments. Bad credit and then bad credit loans may follow. Being good with money is beneficial all around. It keeps you out of debt, helps protect your credit score, and allows you to reach your financial goals.
Think before you take on new expenses. Each new monthly expense, whether it is upgrading your phone service or buying a new car, affects your ability to make ends meet. Often, we add new monthly bills without really considering how it will affect our ability to pay all our other expenses.
Before committing to something else, carefully consider how it is going to impact your monthly budget.
Credit Cards
Minimise your credit card applications. Each credit application you make adds an inquiry to your credit report. These enquiries are 10% of your credit score and can drop you dozens of points. This also depends on the other information on your credit report. Aside from having too many enquiries, lots of credit card applications can also mean lots of credit cards, lots of balances, and lots of payments to keep up with.
Recognise when you are having trouble. If money is tight, don’t resort to credit cards to sustain you. Instead, reduce your spending and work harder to live within your means. Bringing in additional income from working overtime, capitalising on a hobby, hosting a yard sale, or getting a second job may be necessary to ensure you can continue to make ends meet.
Savings
Build healthy savings. Bank balances aren’t factored into your credit score, so saving money won’t directly impact your credit score. But having money saved up will help you avoid some of the problems that do lead to bad credit. Sometimes major life changes can disrupt your life making it hard to keep your credit intact. Loss of a loved one, unemployment, injury, divorce. Don’t worry, work on rebuilding your credit once you are stable and back on your feet.
So, that was Moolr’s blog on the steps you need to take to avoid having to take out any bad credit loans.
