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September 20, 2007

Bad Credit, 5 Ways To Improve It

By Vanessa Cohen

If you were to receive your credit report in the next 24 hours, do you think you’d be impressed with what an amazing dollar-minder you are, or do you think you’d be left wondering how the hell you let your credit turn into bad credit?

Did you know that 26% of Americans are living far beyond their means? And women are charging everything they want onto those fantastic plastic cards that magically make them the owners of every hot pair of Manolo Blahniks this side of Spain.

Well, it’s time for you to make sure that you’re not living beyond your means so that you can eventually invest in some property and acquire some assets. Do you remember that beautiful and rich man that you kept dreaming about when you were a kid? Yeah, well, he’s not coming, so you might as well turn your bad credit into good credit.

And that’s where credit scores come in. Credit scores are three-digit numbers that range between 300 and 850. The higher your score, the better, but keep in mind that only 11% of Americans rank above 800. And, unfortunately, anything lower than 620 makes acquiring a loan very difficult.

That said, here are some ways to improve your credit report so that, when you do finally need it to buy a house or invest in a business, you can get a loan at a relatively low interest rate.

Eliminate bad credit

1- Pay your bills before the due date
Considering the advancements we’ve made with technology, I can’t imagine why you wouldn’t be able to pay your bills on time (and please don’t say that you just don’t have the money). You have the option of paying your bills automatically each month (allowing telephone companies and the like to withdraw the necessary funds directly from your account) or you can opt for online or telephone banking to pay your debts.

Ultimately, if you have bad credit because you haven’t been paying your bills, it’s high time you began getting your priorities straight. Pay off your current debts before you accrue more.

2- Lower your debt accumulation
If you can’t pay your credit card in full each month, you can minimize bad credit by at least paying more than just the monthly charge. That way, you will end up paying less interest and can pay off the capital more quickly. And another thing: I know that the gorgeous black dress is on sale and you don’t have the cash right now, but if you can’t afford to pay for it in cash, chances are you can’t afford to pay for it with a credit card, either. Don’t make your bad credit worse.

3- Don’t cancel credit cards that you don’t use
Although popular opinion dictates that, in order to improve your credit rating, you should terminate already paid accounts, Fair Isaac Corporation (a.k.a. FICO, the company that tabulates your credit rating) reports that closing off such accounts can actually end up hurting your credit.

By closing your accounts, especially older ones, it makes it appear as though you haven’t had a very long credit history, thus making you undesirable or “untrustworthy” to financial institutions. But if you have 11 credit cards, it’s best to cancel the ones you acquired most recently.

4- Don’t apply for too many cards
While having a wallet full of plastic may make your feel important, it’s not exactly the smartest move you could be making in the world of credit. What creditors look at when you apply for a loan (or the like) is how much you could possible owe should you max out all your credit cards. And that can make you an unattractive candidate to banks because you’d be more likely to end up with bad credit if you have credit cards valued at $50,000.

So while having one of every card might look nice in your wallet, it doesn’t look so nice to lenders. Keep your credit cards down to a minimum, like say one or, maximum, two.

5- Order a copy of your credit report
While too many credit report checks can do some major harm to your credit report (it means that too many people are checking it, which might mean that you are asking for a lot of credit), it is good to take a look at your report once a year to ensure that no one has stolen your identity and that changes that you made (like canceling cards or paying off debts) have been noted in the report.

There are three major credit reporting agencies that can give you your FICO (a credit score based on the Fair Isaac Corporation model) score:

- Equifax (
- Trans Union (
- Experian (

Eliminate bad credit for good

There you have it: Easy-to-follow tips that will help you improve your credit rating in no time. Remember that, in the future, your good credit rating will make it a cinch for you to own property (or anything for that matter). And yes, if you say goodbye to bad credit, you can even have those Manolos.

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