What is Bad Credit?

1 out of 5 Americans have very poor credit, do you fit that category? Anyone who has ever had bad credit knows just how difficult it can be to get approved for a credit card and qualify for any type of loan. The good news is that it is never too late to improve your FICO credit score. Raising your FICO score is a bit like losing weight; it takes times and it does not happen overnight. The best way to improve bad credit is to manage it responsibly overtime. Here are some tips that can help you improve your credit score:

Payments History        

Pay your bills on time, the longer you do, the better your credit score will be. Paying your bills late results in bad credit and can affect your FICO score in many ways.  For example, if you have poor credit and carry $3k balances on your credit card, your default rate can be up to 28.99%, compared to someone who has good (700-759) to perfect (760-850) credit who may have an interest rate of 8.9%. As a result, the person with good credit pays around $27 monthly while the person with poor credit will be hit with charges of $87 each month. In 5 years time, a person with good credit saves $3,600 in interest.  Delinquent payments and collections will have a major negative impact on your FICO score as well.  In fact, once you pay off a collection account it will not be removed from your credit report.  Instead, it will stay on your report for 7 years. Are you having trouble making ends meet? The first thing you can do is contact your creditors or see a legitimate credit counselor.  Your credit score will not improve immediately, but managing your credit and paying your bills on time will increase your scores overtime.

Amounts Owed

It is vital to keep the balances low on credit cards and other "revolving credits" because high outstanding debt can affect a credit score.  It is recommended to keep your debt to credit ratio below 30%. Paying down your revolving credit is one of the most effective ways to improve your credit. In addition, it is also recommended that you keep between 3 to 5 personal credit cards.

By following these tips, you can start improving your FICO score and start receiving the financing you deserve. Continue paying your debts and over time you will see an improvement in your FICO score.