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In today’s economic environment, credit scores are more important than ever in borrowing. Sub-prime loans are drying up and the ones that remain are getting more costly in both fees and interest rates. Most financial experts agree that the days of cheap credit are gone for the foreseeable future.
With this in mind, below are the immediate actions you can take to begin rebuilding your credit score. Obviously these steps are not always easily achieved but each action is another step towards a better credit score:
Avoid any new derogatory actions. Each new delinquency, collection, or charge-off on your credit report will affect your credit score for years to come. Often the only way to compensate for these negative attributes is with time. Avoid these actions by limiting your spending or restructuring your debit. Restructuring may be difficult with a low score so it is best to avoid the debt in the first place.
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While we don’t have any credit card debt now, except for 0% APR balance transfers, there was a time when we did. While we never let our credit cards get completely out of control, we did build up several thousand dollars on our credit cards when I first got out of college.
So having gotten into card debt and then climbed out of it, we’ve learned many of the causes of this financial pain. The fact is, we can talk ourselves into using our credit cards in ways that will hurt our finances down the road.
So here are 10 lies we tell ourselves that get us in credit card debt and keep us there.
It’s an emergency. Often we go into debt by convincing ourselves that we have an emergency. Certainly there are times when a true emergency arises. Medical expenses are a good example of a real crisis. But many times what we call an emergency isn’t really an emergency. Whether it’s a second car that needs repair, or even our child’s college education, we can often go without addressing what at first seems like an urgent expense. If life or liberty isn’t at stake, it’s probably not a true emergency.
We deserve it. This one has snagged us more than once. After working so hard to save money and spend wisely, sometimes we let our guard down under the guise of a reward. Perhaps you’ve had a hard week at work, and spending $150 on a fancy dinner that you can’t really afford seems like a good idea and something you’ve earned. The problem is that it’s like taking one step forward, two steps back. The “reward” just digs you deeper and deeper into debt.
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It’s important to note that raising your FICO credit score is a bit like losing weight: It takes time and there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time. See how much money you can save by just following these tips and raising your credit score.
Payment History Tips
* Pay your bills on time.
Delinquent payments and collections can have a major negative impact on your FICO score.
* If you have missed payments, get current and stay current.
The longer you pay your bills on time, the better your credit score.
* Be aware that paying off a collection account will not remove it from your credit report.
It will stay on your report for seven years.
* If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor.
This won’t improve your credit score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.
Amounts Owed Tips
* Keep balances low on credit cards and other “revolving credit”.
High outstanding debt can affect a credit score.
* Pay off debt rather than moving it around.
The most effective way to improve your credit score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
* Don’t close unused credit cards as a short-term strategy to raise your score.
* Don’t open a number of new credit cards that you don’t need, just to increase your available credit.
This approach could backfire and actually lower your credit score.
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Even in the best of times, carrying a balance on your credit card is a risky — and costly — proposition. These days, it can be downright foolish, at least if there’s a chance you might miss a payment or two.
Millions of cardholders have recently received letters from the likes of Citibank, Bank of America Corp., Wells Fargo & Co. and American Express Co. notifying them that their interest rates are going up, in some cases to 30% if a single payment is missed.
JPMorgan Chase & Co., the nation’s largest issuer of plastic, has begun charging hundreds of thousands of cardholders a $10 monthly fee for having carried large balances for more than a couple years.
Why? In part it’s because default rates are rising and banks are dealing with additional risk. But lawmakers and consumer advocates say the higher rates also reflect banks’ massive losses from betting wrong on the housing boom, and they’re basically sticking credit card customers with the tab.
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Natalie Hickey left her small hometown in Ohio six years ago and aimed her beat-up Dodge Intrepid for the West Coast. Four years later, she realized a long-held dream and graduated with a bachelor’s degree in photography from Brooks Institute in Santa Barbara.
She also picked up $140,000 in student debt, some of it at interest rates as high as 18%. Her monthly payments are roughly $1,700, more than her rent and car payment combined.
“I don’t have all this debt because I was buying stuff,” said Hickey, who now lives in Texas. “I was just trying to pay tuition, living on ramen noodles and doing everything as cheaply as I could.”
Hickey got caught in an increasingly common trap in the nation’s $85-billion student loan market. She borrowed heavily, presuming that all her debt was part of the federal student loan program.
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President Obama ’s budget proposal for 2010 projects a stunning deficit of $1.75 trillion for the current fiscal year, which began five months ago, reflecting a shortfall of more than $1 trillion as the fiscal year began, plus the costs of bank bailouts, the first wave of spending from the newly enacted stimulus plan and the continuing costs of war.
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The economy is in a shambles. The stock market’s down, unemployment’s up, and the housing market is still skidding sideways. The people I know are beginning to get nervous. They’re worried that the recession will turn worse, and that their personal finances will end up in ruins, too.
When it comes to money, the best defense is a good offense. The best way to avoid fallout from the national economy is to take control of your personal economy. By developing smart financial habits, you can remain calm even in the midst of a financial crisis. (Well, mostly calm, anyhow.)
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President Obama’s budget proposes $989 billion in new taxes over the course of the next 10 years, starting fiscal year 2011, most of which are tax increases on individuals.
Not looking good…
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9 Good Habits For A Deep Recession
Keep A Cool Head
Freaking out and selling all of your investments, or stopping your contributions to your 401k because you’re panicking isn’t going to help you in the long term. Don’t put your emotions in charge of your money.
- Learn To Dislike Debt And Pay It Off
So-called “consumer debt” is your enemy during a recession. Pay it off as quickly as you can. This type of debt includes car loans and credit cards. A good way to tackle the debt is to start with the loans that have the highest interest rates. Another strategy is called the “debt snowball.” It doesn’t matter how you do it, just do it.
- Know Where Your Money Is Going
There are lots of different ways to track your spending and make a budget. There are online solutions, such as Mint.com and Wesabe.com. You could also use Quicken or Microsoft Money. Or you can do it yourself.
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Cool little idea found on another site…
Some of my friends put a rubber band around their wrist if they’re supposed to remember something, like getting milk on the way home. Some of my friends send themselves email or schedule events in Outlook. Some of my friends draw treasure maps and hide them behind paintings in their attics (okay no they don’t, that was from Goonies). The point is, we all have little hacks we use to remind us about things we are supposed or not supposed to do in the future.
Here’s a hack: Write on your credit cards. If you’re saving for a new television, write “New Television” on your credit cards. If you’re saving for your kid’s 529 plan, write “College Education” on the front of your credit cards. If you are $10,000 in credit card debt and devoted to busting that monkey on your back, write down $10,000 on the front of your credit cards. This simple act alone has the potential to change your behavior for the better and, if nothing else, help you achieve your cash flow-related goals much sooner.
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