One of the most tragic effects and, simultaneously, causes of the current financial crisis is the poor credit scores of Americans. In the first place this is a cause, in that many Americans could not get a loan with a reputable company at a fair rate because of their poor credit. This, because of the unaffordable rates, because of the enormous down payments, made it impossible for these people to continue to pay, which helped to destroy the banks. At the same time, as the financial crisis continues, more and more Americans are losing their jobs and having an ever harder time of paying for bills. As a result, their credit scores are falling once more. Therefore, the credit scores are also a results of the financial crisis. If we wish to repair the damaged economy, repairing our credit scores is very important. What follows are some recommendations about how to repair your credit and, therefore, be far more likely to be able to qualify for an affordable loan.
Anybody can qualify for a loan. That is a fact. However, to qualify for an affordable one, a person must have the trust of their creditor. A person's credit score essentially shows that trust in a numerical value. Therefore, to raise the creditors' trust, and your credit score, you must do things that show that you can be a responsible and trustworthy debtor. The most important way to repair your credit is to reduce your debt to income ratio. This is the largest portion of your credit score, meaning that you must pay off as much of your debt as possible. If you have excessive credit card debt, an excellent way to do this is to pay the minimum on all of your bills except for one. With that you should pay as much as you can afford, which can pay off your debt far faster than you might expect.
Next, you have to establish a foundation of paying off your debts on time. If you just came out of bankruptcy and can't qualify for any credit at all, a good way to establish this is to get a secured credit card. This offers no risk for the lender, meaning that almost anybody can qualify. And if you pay off the bill in full every month, which is a good practice anyway, you can quickly show a future lender that you are responsible enough, by raising your credit score. If you have a mortgage, make sure that you don't miss any payments on that either.
And, finally, limit the number of lines of credit that you have open. This has a small but noticeable effect on your credit score. Every additional line of credit "pings" your credit score, reducing it by a small amount. More importantly, this can be one reason why you missed your payments before. A large number of lines of credit can be extremely inefficient, meaning that you simply forget to pay some of those bills. And every little bit can help.
