While many people are aware that they have a credit score they do not understand what affects it. There can be errors in your file that lower your score and small problems that you may think are insignificant but can cause your credit score to nose dive.
Work with your bank
Many people when they start to get into financial difficulty try to ignore the problem. This can make matters significantly worse as late fee start to accrue and penalty rates are applied. The best action you can take is to contact your bank, explain your situation and negotiating an acceptable payment plan to both parties.
Balance your balance
If you have a balance on your credit card over 50% of your credit limit then you are having a negative impact on your credit score. By bringing your balance down you will increase your credit score. This should be your highest priority to try to minimize your spending to quickly reduce the debt level.
Know what you are agreeing to
If you are negotiating a settlement of your outstanding debt, you need to be aware of what this may do to your credit score. There may be an alternative that will avoid a default being recorded on your file. You need to remember that the people recovering the debt are only concerned with maximizing the amount of money they get, not with how your credit file looks after they have the money.
Late payments are a waste of money, incurring fees and negatively affecting your credit score. A good record of payments will help your credit score it costs you nothing. Set up a system so you can track the due dates of your bills and pay them a few days early.
Reduce your limit
A way to improve your credit rating is to contact your bank and reduce your credit limit. This will only work if you can keep under the new lower limit and as mentioned above carrying more than 50% of the limit will negatively affect your credit limit.
Pay off old debts
If you have any accounts that have gone to collection or are past due then they will be dragging down your credit rating. Paying them will improve your rating when the system is updated however they will still appear on your credit report.
Check your statements
While it is always important to reconcile your month’s credit card bill it is imperative that you take action on any late fees that have been mistakenly charged. If you can quickly have these reversed then they will not impact your credit rating. If they are left then it can take a long time before your score recovers.
In some circumstances, it can be a good idea to consolidate many smaller high interest debts into a single lower interest debt with a single payment. This makes it easier to get back on track and when you have more available cash, you can pay down the loan faster. This should not be seen as a way to start again with credit card debt or you will end up in the same position with even more debt.