5 Ways To Avoid Bad Credit

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People who use a credit card must know what band credit is. Bad credit is basically described as the past failure of a credit card holder who is unable to clear his debts and therefore fails to get approved for additional credit. When you consistently default on your credit card payments the bank flags your account as a delinquent account and sells it to a collection agency. The collection agency is a 3rd part institution that has no link with the bank. This institution will persuade you to clear your debts.

The Effects Of Bad Credit

Bad Credit mostly has a negative impact on your financial position. Firstly, if you have a bad credit then banks and other financial institutions might be hesitant in giving you loans. Moreover, due to a bad credit score banks won’t accept your credit card application hence you won’t be able to get a credit card. That’s not it, numerous loan companies look at your credit score before giving you an insurance rate. Bad credit score means that you won’t get a good rate of insurance from your insurance company.

How To Avoid Bad Credit

Now keep in mind that bad credit won’t last a lifetime. You can take a few steps to avoid bad credit and also fix it. The following are steps that you can take to avoid bad credit.

1. Pay your bills on time – the first and the foremost thing that you can do to avoid bad credit is pay bills on time. Francis Financials president, Stay Francis says that paying your bills on time is the simplest and the easiest way to avoid bad credit.

2. Don’t reach near your monthly credit card limit – every credit card holder has a credit card limit. Credit card limit is the amount of money that you can charge on your credit card. If you have a credit limit of $3000 then don’t get as close to $2999. Reaching close to your credit limit can send your credit card score down. Furthermore, it is always advisable to utilize 30 percent of your credit limit.

3. Make a budget – it is best to make your monthly budget and then stick to it. Your budget should be realistic and not overstated. Making a budget is one of the best ways to avoid bad credit. As you will know your limitation, you won’t spend much. On the contrary, you can also increase your monthly savings by creating a budget. At first living on a budget might seem to be difficult but soon you will get used to it.

4. Maintain a good relationship with your creditors – you must always maintain a healthy relationship with your creditors. In case of financial woes call up your lender and tell them you concern. Make them aware of the situation; I am sure your lender will be more than happy to help you. Furthermore, your creditors can offer you to stop making payments for a couple of month or they might revise your payment plan.

5. Be sensible – well one should spend money wisely and sensibly. No one knows your situation better than yourself. You should not spend more than you can repay. I always say that credit cards are a sweet trap for the people. They entice you to buy things that you know you can’t own. Hence, I would advise all of you to use your credit cards just for emergencies. Additionally, don’t try to exceed your credit limit as failure to repay your debts can have a devastating impact on your financial condition. The bottom line is that spend money on necessities and not on luxuries if you are living life on a budget.

Author Bio
Loren is a freelance blogger who occasionally writes on finance and relationship, She recently read this article http://millennialliving.com/content/are-canadian-mortgage-rates-about-start-trending-upwards and found it very interesting.

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