A member since 1988, Ms. East encountered troubling times and HCFCU was able to assist her needs. Here is her story.
– To maintain good credit – live within your means
Consumer debt is growing at an alarming rate. Sometimes it’s hard to see it coming before you suddenly find you’re a statistic.
Ask yourself these questions:
Is your spending out-of-control?
Do you feel like you’re in over your head?
Are you missing scheduled monthly payments?
If you answered “yes” to any of these questions, you may be headed for serious financial trouble – a bad credit rating that will follow you for years to come. It can keep you from getting things like a mortgage, a car loan, or even a job. It’s never too late to start on the road back. Harris County Federal Credit Union suggests these ideas to help you get started.
First, realize that you’re not alone
The Federal Reserve estimates that U.S. consumers are currently carrying a debt load that is 37% heavier than it was just five years ago. Recent world events have created a very unstable economy and many jobs have been lost. People are finding that it’s very easy to borrow more money than they can afford to repay.
Prepare a written budget, and then stick to it!
The best way to keep your credit good is to live within your means. It may take a while to establish a budget. You’ll need to track your spending for at least a month, maybe up to three months. Once you actually start recording your expenditures, you may spot some items right away that can be trimmed. HCFCU has worksheets and formulas that you can use to set up your budget.
Write down all your ongoing monthly expenses: rent or mortgage, car payment, utilities, loans, all the things you write a check for every month. Remember to add in groceries, gas and an allowance for emergencies like medical expenses or car repairs. Then subtract those expenses from your monthly income. This will tell you how much discretionary income you have.
Be diligent about making your scheduled monthly payments on time
Your credit rating- good or bad – will follow you for years to come. If your mortgage, auto loan or credit card account becomes delinquent, it’s noticed by credit reporting agencies all over the country. Paying on time lets creditors know you’re serious about maintaining your good credit, and that you are a “good risk” for future credit offers.
From your written budget, organize your scheduled monthly payments according to their due dates. Depending on when you get paid each month, determine which bills get paid out of each paycheck. As soon as you get paid, pay your bills first.
Credit cards – a double edged sword
It’s easy to get into financial trouble with credit cards. If you get to where you’re only able to pay the minimum amount each month, you need to put the brakes on your spending right away. The “minimum payment due” on your credit card statement may look like the easy way out, but it can take years to pay off your balance at that rate. Pay as much as you can each month.
On the other hand, responsible credit card use can help you break large purchases into smaller, more manageable monthly payments. For instance, if you need to replace your refrigerator, consider paying with a credit card so you can pay for it over a few months. Remember though, that you’ll be paying a finance charge on the unpaid balance, so decide up front how much you’re going to pay each month.
Bankruptcy should only be considered as a last resort
It will leave a bad mark on your credit for the next seven to ten years! Contact HCFCU for alternatives.
Help is available from Harris County Federal Credit Union
If you’re having trouble making ends meet, give us a call. There are many different ways we can help you manage your debt. We’ll look at your unique situation and help you find the best remedy.
After hitting rock bottom with your finances, it’s easy to abandon all hope of recovering a healthy credit score. Don’t despair – you can improve it. Follow these tips to rebuild your credit after a financial disaster like entering bankruptcy.
Bankruptcy’s effects on credit scores
A credit score is one of the most important grades that you get in life. It affects your eligibility for car and home loans, and can even affect job opportunities. If you bomb a test in school, your overall grade for the class does not automatically fall to an F. Credit works the same way; one bad mark doesn’t mean you can’t improve the score.
If you seek court protection, you’ll either file a Chapter 7 or a Chapter 13 bankruptcy petition. A Chapter 7 process, or liquidation, wipes out most debts in full and stains your credit report for a decade. A Chapter 13 filing lets you keep your property, but requires modified payments for three to five years on debts and stays on your record for seven years.
Five ways to boost your credit
A credit score rates your riskiness as a borrower based on several factors. It reflects your actions, for better or worse. While your rating might take a hit immediately after a bankruptcy, you can improve your score with these five steps:
1. Build credit with a card
Apply for a secured credit card, which requires putting money up front in a savings account to back any charges you make. The amount usually acts as your credit limit.
2. Pay on time
The best way to improve your credit is to consistently make at least the minimum payments on any debts – credit cards, loans, mortgages – on time. After establishing and maintaining a good track record for six to nine months, you may see a few extra points added to your score.
3. Stay under the limit
Use less than 30% of your credit limit. Maxing out a card or coming close to the limit you can use makes creditors worry that you are in a financial bind.
4. Keep accounts open
Keeping your card and other revolving accounts open adds to the age of your credit lines, which can help demonstrate financial maturity to the ratings bureaus. But don’t open too many new accounts in quick succession, as that can suggest you’re running into financial difficulties and lower your score.
5. Diversify credit
Different types of credit, such as installment loans including monthly car payments and revolving credit such as a card, can boost your score.
Remember to check your credit scores annually to ensure there are no mistakes tanking your risk rating. You are entitled to one free report from each reporting bureau – TransUnion, Equifax and Experian – once a year.
Finally, don’t overlook your lender. Financial institutions like Harris County Federal Credit Union often provide ways to help members improve poor credit histories or overcome difficulties.
Cait Klein, NerdWallet