Creating good credit is at the heart of financial security and independence. This video introduces Vikki Frank, executive director of Credit Builders Alliance, a new non-profit that is helping support community-based organizations so that their clients can build better credit and move forward in life.
Credit, says Frank, is the decision of a business to lend you money or have a financial transaction with you. In essence what we’re talking about is your financial reputation. Your credit rating can tell people how you manage your money, which says something about you as a person. Lenders are happy to loan money to people they feel that they can trust, and trust comes from being able to show that in the past you’ve managed money well.
Your credit rating can drop for a lot of different reasons. Sometimes people get in over their heads and live beyond their means, racking up credit-card debt and using credit to pay for the basics of life. Others may just have poor money management skills. Others still have suffered a financial disaster—the loss of income as a result of a company closing or downsizing, a health problem, even a natural disaster can cause bankruptcy.
The good news
The good news is that bad credit can be repaired. It’s not forever. There are positive steps that you can take to raise your credit score. It happens slowly, of course, but it can happen, as long as you have perseverance, can create a budget (and stick to it!) and are always aware of what your score is and what is happening in your finances.
Get rid of all those cards!
Credit-card companies make it very tempting to obtain and use them. You get promised all sorts of side benefits. You may get an attractive short-term reduction in interest charged. But too many credit cards can be too tempting—and owning more than a few raises red flags to companies looking at your credit core. Keep one or two credit cards for emergencies, but make sure that they were are only used for emergencies, and get rid of the rest of them.
And don’t carry a lot of money on them. This is the most expensive credit out there, and if you only pay the minimum due every month you’ll find that even just a couple of thousand dollar’ balance can take you years and lots of extra money to pay off. So pay them off now and don’t use them again!
As soon as you can, take out a small non-credit-card loan. The point of this isn’t to obtain whatever it is that the loan is paying for; it’s to show creditors that you can borrow money and pay it back on time. And then, of course, make sure that you make timely payments!
Create a budget
The most important thing you can do is create a budget and stick to it. Just because you want something doesn’t mean you can have it. Make sure to set aside something every month for savings once you’ve paid off those credit cards, and keep paying your mortgage or rent on time also. Eventually all of these positive steps will pay off with a better credit score.
And then you can truly move on with your life.