In
short, good credit can be achieved by successfully managing your debt and paying
your bills on time each month. Any time that you fail to make a payment on time,
you will be reported to the credit agencies and your credit will be negatively
effected. For example:
- If you fail to make a payment within 30 days of
the payment due date, your lender may report this to the credit agencies as a
30-day late payment. Your credit report will show "1x30", which means you failed
to make a payment "1 time" in 30 days.
- If you continue to
delay payment past 60 days from the due date, your credit report may show "1x60",
which means you failed to make payments "1 time" in sixty days.
- If
you continue to delay payment past 90 days from the due date, your credit report
may show "1x90".
- Finally, if you continue to delay payment,
your credit report may show that the account past due has been sent to collection.
Keep
in mind that these marks on your credit report can have a negative impact on obtaining
a loan, credit card, insurance or even a new job! Some lenders may not approve
your application if your report has any "1X60's" or greater. Other lenders
may not give you the best interest rate available if your report shows any "1x30's".
Likewise, employers who see more than 3x30, or 2x60, etc., may consider you a
risk to hire for a new job.
Managing and reducing
your debts
If you find yourself spending more
money than you bring in, don't rely on your credit card to pay for things that aren't
necessities. If you do, you're only making a bad situation worse and you'll end up paying much more in the end.
Take
the time to establish a monthly budget. Differentiate between the things you "need"
and the things you "want." Start with your fixed expenses or "needs"—like rent,
food, utility and phone bills, car loans, and insurance. Then figure
in variable "wants" like clothing, eating out, and entertainment. Subtract your
expenses from your income and you have your starting point. If the sum is below
zero, it's time to reduce your expenses by cutting out unnecessary spending on
"wants."
In most cases, cutting your expenses
is the first step towards paying off your debts and becoming more financially
independent. To help you move in the right direction, here are a few tips on how
to do this as painlessly as possible: |
