5 Ways to Avoid a Bad Credit Listing
If you want to avoid a bad credit listing, make sure that you are paying your utility bills, credit card balance, mortgage, personal loans and other types of debts on time. It is a bit challenging to do so-especially if you have limited income, so we put together practical and simple tips to avoid negative entries in your credit file.
Don’t forget the 30/100 rule
If you’re nearing the credit limit, use the other card with a lower utilization rate. Maxing out your credit limit can cause a significant dent on your credit score. The safest way to maintain lower utilization rate is to limit your spending to 30% of your credit limit.
Let’s say, you are a holder of X card with a thousand dollars credit limit, don’t spend beyond $300 to maintain your safe range. If you hold 4 credit cards, spread the expenses over so that you don’t max out any of your cards. It is also important to compute the total credit limit you have. For example, each of your cards has a credit limit of $250. Make sure that you keep your total debt below $300.
Be careful with rebates and freebies
Don’t use credit cards just for the sake of earning rewards and rebates. While discounts seem nice they may entice you to spend on things that are not really necessary. Plus, borrowing on your future earnings for the sake of freebies, which aren’t exactly great deals—such as free popcorn, a liter of gasoline or a scented stationary is not a sensible exchange for the interest rates you need to pay. There are also good ones such as free airplane tickets, concert tickets to your favorite artist or football team. But whenever they pop up, take a deep breath and count 1 to 10. If on the 11th count you still think it is worth the credit cost, then go for it. But, make sure you’re not exactly looking for freebies. Otherwise, you’ll be seeing a lot of them and you’ll have all the reasons in the world to use up your credit limit.
Close down the most recent credit cards and keep the two oldest and low-interest credit accounts. You may have opened various credit cards in the past few years and they may have served their purpose well. But, don’t you think it’s time to limit it into two cards? That way, you will not be tempted to overspend. Many Aussies have at least three cards—well they can earn maximum rewards and get the right amount of money anytime they need it. But, credit card has high interest rates, which could exceed 25%. Even if they keep their utilization ratio lower than 30%, if they miss their payments, they will have to deal with two things—lower credit score and higher penalty and fees.
If you decide to close your credit card, make sure that the oldest ones with the lowest interest rates remain. The reason is simple, credit history is one of the most important factors that determine your credit score. The longer you took out debts that you responsibly pay for, the higher your credit score gets.
Set a payment reminder for all your debts. If you haven’t automated payments to your credit cards, debts, utility bills and other existing loans-you may set your monthly reminder. This way, you will not forget the monthly schedule of payment for each debt. The reason why many individuals miss payment is because they really forgot about the due date and not because they don’t have the money to pay for it. So, to avoid defaulting on your debts-always remember when you are supposed to pay. If possible, automate all your payments.
Clean up your credit
Have you seen your credit reports recently? If not, it is high time to request for your own credit file. While some lenders only ask for your credit score, requesting a copy from the major credit reporting agencies can give you a good idea about your borrowing habits. You’ll discover the reasons behind your credit standing, the expenses that led to this financial situation and the bad credit listing that you’re probably not aware of.
With the accessibility of credit due to credit cards and quick loans online, being in debt is almost the “new normal”. But, there are also people who are scared of being in too much debt especially when they’re putting their homes, equities, cars and other assets on the line.
That’s why it is important to invest time and effort into repairing your own credit. Double-check the information entered in your credit file to ensure that it is correct, accurate and updated. Otherwise, you’ll be paying for loans you have already settled, or debts that do not belong to you.