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Poor Credit Got You Down? Try This…

Living with bad credit might feel like you’re never going to be able to own anything or be able to get ahead in life. With almost a third of the people in the United States living with at least bad credit, you’re in good company… well maybe not “good” but at least lots of company. Even with a credit score that is less than 600, you can still get ahead if you are wise about it. A bad credit score hurts you in many ways, it not only prevents you from buying stuff, it also raises the interest rate you have to pay on stuff you do buy. People with Good Credit Pay Lower Interest Rates. So how do you improve your credit score?

Apply For Credit Cards

Disadvantages of Having Bad Credit

It may sound counter intuitive that a credit card will improve your credit rating but lenders want to see proof that you know how to handle your credit. Even if you aren’t eligible for a Visa or MasterCard with a high spending limit, there are still credit card options, some that can help you build your score. You can usually get a secured credit card that has a low limit and that you provide a deposit on, preventing you from spending much at one time. But be very careful because they often have very high fees. See: Credit Cards for Those with Bad Credit 

When you get the bill for the amount spent, pay it off before the due date, so that your score will start to increase. A gas card is perhaps a better option as they are usually a bit easier to get than a card from a larger company. Just be sure to use them wisely… don’t get yourself into more debt!

Buy a Car

Although you might not be able to get a new car right now, you can find car dealerships, like AutoStart, with used vehicles that will report your payments to credit companies. If you make your payments on time, then your score will begin to increase. After the car is paid off, you should drive it as long as possible while setting aside your former car payment for a new car. Hopefully, when it comes time to buy your next car you will be able to afford to pay cash, thus saving a considerable chunk on interest payments.

Find a Home

Your credit score can impact buying a house more than anything else. There is an option to have a co-signor on a loan for an apartment or a home. Private landlords are often easier to work with if you have bad credit. Some apartment complexes will run a credit check but only look at the overall score based on their system. If you’re approved, then there could be a higher deposit, but you’ll be able to have a home.

Use Cash (or a Debit Card)

It might take a bit longer to save money to buy something that you want, but paying cash for something means that it will be yours. You won’t have to rely on credit or debit cards or bank accounts. When you use cash, there aren’t any security issues with using a credit card, protecting your personal information that could otherwise be stolen. And best of all none of your payment goes toward interest.

Most people don’t realize how much money they are wasting paying interest. The worst case of course is a long term loan with a high interest rate. In cases like a 30 year mortgage the amount of your interest rate can make a very big difference. For instance, if you have a $200,000.00 dollar,  30 year mortgage with 5% interest you will end up paying almost double the original mortgage. You will end up paying $186,513 in interest in addition to paying the original $200,000 in principal. If your interest rate was 1% lower (i.e. 4%) you would “only” pay $143,739 in interest. So, you would save almost $43,000 or approximately what the average american’s take home pay is for a whole year! Of course, most people can’t afford to pay cash for their homes which might be part of the impetus for the tiny home movement. See: Modern Housing Hacks to Get a New House- Cheap

What about Cars?

Suppose you get a 6% loan for a $30,000 car for 5 years. Your monthly payment would be about $580 and over the 5 years would be about $4,800! Which means that 8.27 of the 60 payments you made actually went to pay the interest on the car.  If you took just the interest you would have paid and bought a used car for $4,800 and then drove it for 4 years while paying yourself the $580 every month you could walk into a dealer and pay cash for a new car. Or better yet, buy a 2 year old used car for $18,000 (which was $30,000 new) and put the $12,000 into an emergency fund, saving yourself 2 years of depreciation. See: 

Credit Cards

In  we said, “People who aren’t very money savvy think paying the minimum is a cheap way to get stuff. After all they got $10,000 worth of stuff and they are only paying a little over $200 a month for it. But… remember that stuff is depreciating and the interest is mounting up.”  And we showed how if you start with only $10,000 in credit card debt and pay the minimum every month you will probably be in debt to “the man” for the rest of your life. Which is why banks are happy to get you into credit card debt and even give college students with Zero income a credit card.

Your credit is a lifeline to many of the things that you need or enjoy in life. Without good credit, it can be harder to make purchases and lock you into a cycle of paying more in interest. The bottom line in improving your credit is to learn how to manage your money wisely. Once you do that your credit score will improve like magic.

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About Tim McMahon

Work by editor and author, Tim McMahon, has been featured in Bloomberg, CBS News, Wall Street Journal, Christian Science Monitor, Forbes, Washington Post, Drudge Report, The Atlantic, Business Insider, American Thinker, Lew Rockwell, Huffington Post, Rolling Stone, Oakland Press, Free Republic, Education World, Realty Trac, Reason, Coin News, and Council for Economic Education. Connect with Tim on Google+