"I thought I had good credit! What went wrong?"
Sound familiar? Have you ever been turned down on a loan and left shaking your head in disbelief and disappointment? Have you ever simply wondered what you could do to be eligible for a loan? Creating good credit is not just luck. You can have good credit. How?
From a lender's point of view, "low risk" is the key. What clues tell them that you are a high risk? They look at your history (your "credit" history) to paint a picture of you, the borrower, who they really do not know. But that history can tell them quite a bit. Take a look:
| Good Credit Risk | Poor Credit Risk | |
| Reliable: all prior debts paid as agreed Lender: "My loan is likely to be paid." |
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| Unreliable: debts left unpaid or settled out Customer: "But I negotiatged a settlement!" |
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| Dependable: all payments made on time Lender: "I won't have to worry about this borrower making his payments." |
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| Undependable: late payment history Customer: "But I did pay all the payments; I just couldn't quite make the due date sometimes." |
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| Financially stable: builds credit slowly and consistently Lender: "This borrower is not borrowing because of stress, but rather is a good money manager." |
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Unstable: takes anything, too many, too fast |
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| Responsible: meticulous, keeps credit cleaned up, specific about details Lender: "My loan will be important also." |
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| Irresponsible: not concerned enough, never looks back Customer: "But I settled that out long ago." |
So which person would you loan to? However, the good news is that if you have poor credit there are things you can do to improve it. You're not stuck! It just takes effort and time. Not only do you have to create good credit, you have to create the "history." That means that you prove yourself over time. How long? Sometimes it takes as little as 6 months.
Here are some tips:
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Obviously, start making payments on time—every time!
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Keep balances low, showing that you can manage your credit.
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Don't open a lot of accounts in a short time period—this hints at desperation.
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Manage your credit. If you pay off a collection, it is not automatically removed. Many times you must follow through on finalized transactions to have them removed from your report.
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Save money! Don't just keep up on your payments; begin to build a cushion. This not only helps if you get into temporary trouble, it sends the message that you can manage your money and that you are not desperate or requesting a loan because you are in trouble.
You have the power to build and manage good credit. It helps to understand how your actions influence credit ratings. Over-time, even credit gone bad can be restored.
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