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Avoiding Bad Credit

May 21, 2012

Let’s face it, bad credit happens to all of us at one time or another. Whether you’re unemployed, are disabled, sick and cannot work or the victim of credit card fraud or identity theft, falling victim to bad credit is easy. Here are some ways to avoid bad credit.

One of the best ways to avoid bad credit is to prevent it from happening in the first place. Creating a monthly budget before you start developing credit is the ideal way to keep your credit from getting out of hand. By making a list of your monthly income and monthly expenses, you’ll know your spending limitations. Just because a credit card allows you to go out and buy a bunch of stuff right away doesn’t mean that you should. It’s important to put a cap on your spending and stay well below your credit card limit. When you spend close to your credit card’s limit, your credit score goes down.

Another way to avoid bad credit is by limiting the number of credit cards you carry in your purse or wallet. Don’t sign up for every credit card you see or are offered by nearly every retailer. Sure you’ll save $20 or 10% on your purchase by signing up, but you’ll pay more in the long run for the privilege of using the card.

An essential part of maintaining good credit is to pay your bills on time and to pay more than the minimum payment. In fact, paying off the entire balance each month shows creditors and lenders that you have the income to pay your bills each month. Your credit report is based on your credit history and whether or not you paid your bills on time. Pay your bills on time and you’re someone lenders would like to lend money. If you can’t pay off the entire month’s balance, then you should rethink your spending and reestablish a monthly budget because your spending is clearly out of control.

Ignoring your credit problems won’t make them go away. For some, the first thing to do is stop using your credit card and contact creditors right away. In some cases, creditors are able to temporarily freeze or reduce payments, depending on the situation. But the sooner you call, the sooner you and your creditors can work together to keep your record clean.

It’s also important to notify creditors when you move as this will prevent late fees from occurring because the bill was sent to the wrong address. The same is true if your credit card has been lost or stolen. By immediately notifying creditors, you’re not held liable for any unauthorized chargers. By making a copy of your credit card and keeping it in a safe place, you’ll have your credit card information in the event it’s ever lost or stolen.

When it comes to avoiding bad credit these necessary precautions can save you thousands of dollars. By paying on time, working with creditors and limiting your spending on only one or a few credit cards, you’re more likely to maintain a good credit score and better equipped to secure more attractive mortgage lending rates.

"By being open and recognizing our strengths and weaknesses, we can see opportunities for growth and ways to help each other."

- Jayson Hardie on Growth

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