To the chagrin of millions of Americans, there’s no easy way to shake off the curse of bad credit. Make a few late payments today, and they can severely impact your credit score tomorrow-and for a long time.
Bad credit is like a jail sentence. The worse your crime, the longer you’ll suffer. People who apply for a debt consolidation loan, or open a new credit card account, are often confounded by how long it takes to recover from bad credit.
A low score is not the act of a vengeful credit bureau. Your score is determined by a number of factors, including late payments, debt loads, and the amount of credit available to you. If you’re going to get frustrated with anyone, it should be the lenders, who approach scores in terms of risk management.
Lower score, bigger risk
The record number of recent loan foreclosures underscores a lender’s need for better risk-management techniques. During the housing boom, lenders took advantage of low interest rates and skyrocketing home values, and doled out money at a blistering pace. When the real estate bubble burst, many of these overzealous lenders went bankrupt. Those still in business are now left holding a number of foreclosed properties.
Naturally, lenders have decided to tighten their lending guidelines. They now carefully analyze a borrower’s credit score, and analyze thoroughly the risk that they’re taking. If someone has a poor score, they become skeptical of his ability to make regular loan payments, especially in a shaky economy.
Breaking the curse
If a low score is an albatross hanging around your neck, you can take steps to improve your credit standing. First and foremost, be sure to make your payments on time. If late pays have plagued you in the past, be extremely diligent about hitting your due dates. This is the only way to prove to the credit bureaus-and the lenders-that you’ve changed your tune.
You should also pay off as much debt as quickly as you can. A debt consolidation loan may help merge all your various debts into one account, and make the monthly payments easier for you to achieve.
The easiest way to get yourself back on track and establish discipline is to make a budget. Chart all your expenditures, and look for areas where you can cut back. Use those savings to pay down some of your credit card debt, especially on those with the highest rates of interest. You could also redirect some money into a retirement savings fund.
Late payments can curse homeowners and their credit scores for a long time. Many late pays won’t go away for seven years, especially missed payments on car loans and home mortgages. If you’re having trouble making ends meet, consider a debt consolidation loan. Getting yourself back on track can be a long, gradual process. Stick to the principles of sound money management, and you’ll soon find a way to break the bad credit curse.
