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If you’re drowning in debt, then you’re not alone. Credit card debt in America totals more than $700 billion. This number increases significantly when you include rising tuition costs, automobile loans, and mortgages. Unsolicited offers for credit cards ard Americans on a daily basis. These enticing offers can be hard to resist. There’s certainly not a shortage of lenders or borrowers. The bad news is that Americans are sinking deeper into debt. Credit cards are a necessity in America. You can’t rent a car or make a hotel reservation without one. Some businesses require you to provide a credit card even if you’re not paying by credit. It’s no surprise that American households with more than one credit card have an average of more than $8,000 debt. In the end, many people find themselves unable to pay their bills. No one wants bad credit – but sometimes it’s unavoidable. Unexpected circumstances can strike at any moment. You could become unemployed, get sick, or experience some other setback that causes your credit score to plummet. A low credit score can prohibit you from getting a job, loan, apartment, or mortgage. The only thing you can do is try to regain your balance. The following pointers will get you started. The Road to Improvement The most important thing is to stop using your credit cards. Your goal is to get out of debt – not into it. Contrary to popular belief, you shouldn’t cancel your cards. Many people attempt to improve their credit scores by canceling their credit cards. This is a big mistake. It will be difficult to establish new credit, and your credit score will drop. Your credit history accounts for up to fifteen percent of your credit score. The concept of credit history is often misunderstood. What it means is the total length of time you’ve had credit, not the length of time you’ve paid late or on time. Lenders use your credit history to judge your stability. Most people can pay on time for a short period, but the long run tells the story. When you cancel credit cards, especially old ones, you could be erasing an important part of your credit history. Here’s an example: You have four credit cards. Three of them are more than 15 years old. The fourth card is less than a year old, and has a low interest rate. You hardly use any of the others so you decide to cancel them. A few months later you check your credit score and realize it’s lower than before. What happened? You erased more than 15 years of your credit history when you cancelled your old cards. The closed accounts still appeared on your report, but didn’t figure into your new score. You had less than a years worth of credit history to consider. Avoid the Point Penalty Don’t apply for more credit. This includes loans and mortgages. Each inquiry into your credit report can lower your score by up to 5 points. If a lender denies your request for credit, and you try elsewhere, your score drops with each new inquiry. Unsolicited credit card offers are exempt from the point penalty. Inquiries from junk mailers don’t lower your score. The point penalty only applies when you initiate contact or respond to a mailing. Pay on Time Everyone knows this one. Nothing lowers your score quicker than late payments. Paying on time – over a span of a few months – will cause your credit score to rise. Don’t despair if you can’t pay the minimum. Creditors are usually willing to negotiate. Contact each lender and explain your situation. Express your regret over the late payments, and offer a monthly payment that you can manage. If this fails, they may lower the interest rate or reduce the late fees. Having a low credit score isn’t the end of the world. Your score will rise if you exhibit good credit behavior. You can do it. ___________________________________________ By Michelle Strait
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