Do you feel your credit stands in the way of getting approved for financingfor a home or a new car? Having bad credit can do more than prevent you fromgetting approved for a loan; you may also have to pay more for insurance andprovide a security deposit on utilities if you move. Financial challenges canoccur to anyone, any time. The good news is you can begin to improve yourcredit immediately. While repairing your credit does take time, it’s possible toimprove it as long as you’re dedicated to positive financial habits.

1. Pay your bills on time

This is one of the easiest ways to build your credit score and,most importantly, build great financial habits. When youpay your bills on time, you ensure no payments end up incollections.

  • Create a budget. A budget tells you where your moneyis going and helps you plan to spend it wisely. Start bycalculating how much income you have each month,from work, child support, etc. Then, tally up your expenses,from ones that are due monthly, such as utilities and rentor a mortgage, to those due less often, such as taxes, carmaintenance, etc. Also, be sure to include other expensessuch as coffee runs, lunches with coworkers and other nonessentialexpenses. This will give you a clear picture of yourfinancial state and help you see where you can save money
  • Reduce non-essential expenses. The first place to make cutsif you’re trying to save money is your non-essential expenses.Try making coffee at home or at work instead of buying oneevery morning, and reserve going out to lunch for Fridays tosave on restaurant expenses. While it may not seem like much,making small cuts will help you save money, pay down debtand live well within your means.
  • Track your spending. Creating a budget is only half thebattle; the other half is tracking your expenses. Tracking helpsyou stick to your budget. Write your expenses in a notebookor input them in an app; either way, take the time to track yourspending and you’ll always know where your money is going
  • Get current on accounts that are past due, but not charged off. Contact your creditor to find out how toget current on the account. If you pay your debt in full,the balance will become zero and the account will be paidoff. However, it may stay on your report for seven years afterthe date of charge off.

2. Review your credit score and history

The place to begin when improving yourcredit is with your credit history. You’re legallyentitled to a free credit report from each ofthe three credit bureaus each year throughannualcreditreport.com. Reviewing your credit periodicallyallows you to see if there is information that may negativelyimpact your score.

  • Look for incorrect information such as payments that were incorrectly reported late, accounts that are not yours, etc.
  • Be aware of account that are past due, that are late, have been charged off (i.e. the payment is 180 days past due) or have been sent to collections, as well as accounts that are over the credit limit.
  • Dispute inaccurate or incomplete information. While you can do this online or over the phone, it may be best to do it through the mail so you can create a paper trail. If your dispute is legitimate, the credit bureau will investigate and give you a response.

3. Pay down your debts

If you have debt, try to pay it off. If that’s not possible,pay it down to as low as you can.

  • Reduce your debt-to-income ratio. When assessingyour loan application, lenders consider your debt-to-incomeratio; that is how much debt you havecompared to your income. The lower your ratio, themore likely you’ll qualify for a great loan. Start withthe cards or debt with the highest interest rates firstand, once you’ve paid them off, go to the debt withthe next highest interest rate. Over time, you’ll havepaid off your debts.
  • Increase your available credit. You may be able toincrease your credit limits on your credit cards if you’vebeen a good customer. Call your credit card companyto learn more

4. Use credit wisely

Once you have credit, it’s important to use it responsibly.Here’s how:

  • Don’t open new accounts, unless you have to. Opening several new accounts at a time may raise red flags for potential lenders.
  • Keep a low balance on credit cards and revolving credit.
  • Pay off debt instead of moving it to another account or to a new account.

5. Seek professional help

If you have trouble making ends meet, notify yourcreditors and see a credit counselor.