Restore Your Credit For Free

Lately it is not uncommon for folks to have a few problems getting the bills paid on time, considering the loss of job and reduction in pay. Now that you are finally back on your feet you are wondering what you can do to repair the damage that your credit suffered.

You have got plenty of company. There are more than 30 million people in the United States with credit blemishes severe enough (and credit scores under 620) to make obtaining loans and credit cards with reasonable terms difficult.

Or maybe your credit is OK, but you would like to make it better. After all, the better your credit, the lower the interest rates on your on mortgages, car loans and credit cards.

Understanding Your Credit Score

In order to improve your credit score, it's important to know where you stand currently. Despite all the media attention given to free credit reports, you still have to pay to find out your credit score, the three-digit number ranging from 300 to 850 that is the key to your borrowing costs. You can obtain your FICO credit scores, the ones lenders use, from MyFico.com. Or you can get Experian's "consumer education" version here. Once you know what your score is, let the restoration begin.

Now you are ready to take the steps to speedy credit repair:

1) Pay your credit cards down. Paying off your installment loans (mortgage, auto, student, etc.) can help your score, but typically not as dramatically as paying down -- or paying off -- revolving accounts like credit cards.

The credit-scoring formulas like to see a nice, big gap between the amount of credit you are using and your available credit limits. Getting your balances below 30% - 40% of the credit limit on each card can really help.

While most debt counselors recommend paying off the highest-rate card first, a better strategy here is to pay down the cards that are closest to their limits.

2) Use your cards lightly. Hefty balances can hurt your score, regardless of whether you pay your bill in full each month.

You typically can increase your score by limiting your charges to 30% or less of a card's limit. If you are having trouble keeping track, consider using a check register to track your spending, logging into your account.

3) Know your limits. Your score might be artificially depressed if your lender is showing a lower limit than you have actually got. Most credit-card issuers will quickly update this information if you ask.

If your issuer makes it a policy not to report consumers' limits, however -- as is the usual case with American Express cards and those issued by Capital One -- the bureaus typically use your highest balance as a proxy for your credit limit.

You could go on a wild spending spree to raise the limit, but a more sober solution would simply be to pay your balance down or off before your statement period closes. Check your last statement to see which day of the month that typically is, then go to the issuer's Web site about a week in advance of closing and pay off what you owe. It won't raise your reported limit, but it will widen the gap between that limit and your closing balance, which should boost your score.

4) Do not close out an old card. The older your credit history, the better. But if you stop using your oldest cards, the issuers may stop updating those accounts at the credit bureaus. The accounts will still appear, but they won't be given as much weight in the credit-scoring formula as your active accounts, said Craig Watts, an executive at Fair Isaac & Co., one of the leading credit scorers.

Begin to take small steps and watch you credit score increase rapidly

How to Restore Your Credit

Believe it or not, there are millions of people with bad credit worldwide. But just because there are millions of others who have bad credit does not mean you shouldn't do anything to improve your credit rating. If anything, improving your credit rating can help you improve the quality of your life. Having bad credit can take its toll on you financially and emotionally. Having collectors hound you and not having the opportunity to acquire loans for various purposes can be tough. The good news is, there are ways for you to improve your credit and you do not need to hire the services of a credit repair company to clear your debt. With dedication and patience you can clear yourself from the red and gain financial strength.

So do not wallow in desperation, take comfort in the fact that you are not alone and you don't have to be in that situation for life. One of the most important things you need to do to restore your credit is to continue making payments on your debt. Make sure that your payments are sufficient and prompt. This can be difficult when you are strapped for cash but it is the best way to improve your credit rating. To be able to do this, you must stick to a budget and even live below your means. You must monitor every single expense you make and cut down on the things you can clearly live without. This may mean cutting down on dining out and even coffee-to-go.

Cutting down on unnecessary expenses can mean a lot when you have debts to pay. In the beginning it can be very difficult but once you get the hang of it, sticking to a budget will come easy to you. Another important thing you must do is to review your credit rating even when you are not applying for a loan. You should request for a copy of your credit report annually. This will ensure that you are able to file disputes when there are inaccurate information in your credit report. This will also help prevent your identity from being stolen or used by other individuals.

If you can help it, avoid having too many credit cards account open at the same time. This may mean you are carrying on debt from multiple creditors that you are unable to pay. It is best to have limited credit cards with available credit in them. Having maxed-out credit cards can negatively affect your credit score. If you have credit cards, do not use them if you can avoid it. You may have trouble keeping your finances afloat when you have too much credit card debts that are earning interest. It may be wise to avail of free credit counseling so that you can work out a payment scheme that will help you get out of debt. Creditors are also more understanding of individuals who have a program worked out in paying debts. This shows the individual is committed to paying debt. Many creditors are even willing to work out a realistic payment scheme with the borrower if the borrower is clear about his intentions of paying and understands his financial position.