Get current on bills
Although credit repair is the ultimate goal
for Angel, she needs to begin by getting her
finances under control. The only way to do
that is to create a budget. This will give
her greater control over her undocumented
spending habits. She will need to keep track
of her spending and limit her impulse purchases
on those high-interest credit cards. Once
she knows where the money is going, she can
attack the credit scores. The two largest
factors in most credit scores are timeliness
of payments and the amount of outstanding
balances. Angel can take steps to improve
both of these.
Angel has made a good
start by setting up electronic bill payment
through her bank. What she must do now is
have an automatic payment made to each credit
card account on a monthly basis. As long as
this is a reasonable amount, and she can check
by looking at past statements, she will cover
the monthly minimum payment and reduce some
of the outstanding balances. By setting up
automatic payments she does not run the risk
of missing payments again and will improve
her scores. This strategy has the added benefit
of taking the cash out of her account, which
lowers the temptation to withdraw it from
ATM machines.
Dealing with emergencies
While Angel feels she needs four cards to
fall back on if she has a financial emergency,
she would be well served to reduce her total
level of debt. She should make extra payments
to reduce the principal on the card with the
highest interest rate first. Then she should
work at them one at a time until the debt
is reduced. Paying off the credit card debt
will improve her debt-to-available-credit
ratio, which will help her achieve better
rates in the future. She should aim for outstanding
balances of less than 25 percent of her credit
limit.
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