Credit Problems & Tips

Modern consumers have access to a variety of credit and debt instruments which can be beneficial when used responsibly. For many people, however, credit card use leads to financial hardships such as loan default, foreclosure and bankruptcy. If you are facing credit problems it is important to work diligently to resolve them to avoid more serious financial hardships.

Excessive Debt

One of the most common credit problems is the accumulation of large debt balances. When you use a credit card, the money you spend becomes a debt balance on the card. Credit card companies do not require that you pay all the money you spend immediately; you only have to make minimum payments that include interest on your balance. Interest can cause balances to accumulate over time, to the point where they are so large, they are difficult to pay off. If you are facing excessive debt, stop using your credit cards and halt unnecessary spending. Use the money you save each month to pay off your highest-interest credit card.

Poor Credit Score

Lenders use calculations known as credit scores to help determine whether to lend to borrowers. Credit scores are calculated from a variety of credit information such as your debt payment history and how much debt you currently carry. If you have a poor credit score, lenders may deny you loans and new credit or charge you higher interest rates. To improve a poor credit score, make all debt payments on time, keep credit accounts open to establish your credit history, use extra cash to pay down your debts and avoid opening new credit accounts.

Credit Score Errors

Since credit scores take account of a wide variety of credit data, it is possible for errors to arise in the information that creditors send to credit reporting companies. If you order a credit report and notice an error in the record of credit events, contact the creditor to dispute the error. Clearing up credit errors can result in a quick increase in your credit score.

Credit Card Fees

Credit card companies often tack additional fees onto credit cards to raise extra money. Even if you pay off your credit card balance in full each month, you may incur fees. Always read the terms of a credit card agreement before signing so that you are aware of fees and read any mailings your credit card company sends to you so that you are aware of changes in fees. Check your credit balance regularly to make sure you don't spend more than your limit and avoid taking cash advances as they often result in costly fees.