No matter how you plan your finances, there will always be unexpected expenses and unforeseen circumstances where you’re going to need cash in a hurry. This becomes a problem when you’re fresh out of college and burdened by all your student loans, or you’re just starting to get your finance house in order. There’s this little thing called a credit score, and yours probably sucks.

What is a Credit Score?

Your credit score is basically your creditworthiness. Think of a file that contains all your financial data based on a credit report from all the credit bureaus. When you apply for a loan or mortgage for example, banks and lenders check this file to see your score, so they can determine the risk of lending you money and how much interest to charge you. If you’re just starting out, your credit record won’t be sufficient enough. There’s just no history yet, making you a big question mark for banks. When you’re swimming in debt, your bad credit score wouldn’t be a source of pride and having bad credit will affect your borrowing power.

It’s a little unfair. After all, why burden you with higher interest rates when you’re already swimming in debt or when you have a no credit history? It’s just business. Traditional financial institutions such as banks have to look out for their own interests before taking a chance on a high risk borrower, and to them, bad credit is bad.

How Bad Credit Happens

Bad credit scores usually take a while to happen, but in some cases good can go bad seemingly overnight. Here are some of the reasons why bad credit exists:

Late Payments – A single past due payment (30 days) can cost you 110 points on your credit score.

Credit Card Overuse – Buying too much stuff on credit can hurt your score if you’re not careful. The higher the balance of your credit card relative to your limit, the lower your credit score.

Debt Management – Filing for bankruptcy can lower your credit score from 130 – 245 points. Debt settlement, deeds of foreclosure and short sales can lower your credit score further, ranging from 85 – 160 points.

Hard Credit Checks – Repeated credit checks and “hard pulls” (more in depth credit checks) can negatively affect your credit score.

How to Repair your Credit Score

What can you do against such overwhelming odds? Well, there’s only one thing you can do: buckle up and repair your credit. It sounds easy enough to do and there are many ways you can do this, but it takes time, commitment and big cojones to drag yourself out of the red. Here’s what you can do:

Practice Frugality – Seriously. You’re in enough trouble as it is. Spend less than what you make and use all the money you save to pay down higher debts.

Pay your bills on time – Late fees can affect your score in a bad way, so make it a point to never be late on a payment again.

Focus on bigger debt – Start paying down your high credit card balances. If you can set aside a relevant amount each month to chip away at it, do it until fully paid. The lower your balance gets, the lower the interest is and it becomes easier to pay off.

Do whatever it takes – Try to exhaust all methods to manage your debt before filing for bankruptcy protection or letting your house be foreclosed.

Debt Consolidation – Consider debt consolidation if you have several loans and multiple credit card bills to pay. This way, you’ll wipe out all your outstanding debt and just focus on paying one loan, usually at lower rates and better terms. There’s a private lender in Montreal that offers debt consolidation services through collateral. If you’re at your wits end, missing payments left and right, check them out.

Parting Thoughts

Bad credit can be a huge pain the ass, especially when you really need to make a loan for a car, a new house or an emergency expense. Don’t let your credit score go south and do whatever it takes to bring it back up. Pay your bills on time, don’t spend more than you earn and live frugally.

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