In efforts to prevent you from becoming a victim of “good credit gone bad”, you need to work to keep your credit in good standing. If you don’t work at maintaining excellent credit, you may find yourself with credit denials and collection phone calls.
If you are faced with a dropping credit score, the first thing you need to do is to access the damage. Look through all your credit account and bank statements to find out how you got into this situation. It is important to make sure you know how you got there, so you don’t end up there again. You must break your bad credit habits, unless you change your lifestyle, the results may not ever change.
Now you need to look at how you spend your money. Begin with your basic living expenses. Only include the items you can’t live without. Now create a column with your average take home salary for one month. Subtract each expense. Rent or mortgage, car payment, utilities, phone, etc. What is left is your discretionary expenses.
Now you need to calculate the how much you spend on groceries per month and subtract that amount. Your groceries aren’t really discretionary, but you may be spending too much on food. If you have children with extra-curricular activities, subtract those expenses next. These are the discretionary expenses you can least live without.
Hopefully at this point you still have a positive balance. If not, you are in real trouble and probably need some professional intervention. Now, you need to take a look at what is left and what outstanding expenses are left. Add up the remaining expenses and subtract from your balance. What does your balance look like now? Look at your ATM withdrawals, dining out, entertainment and other ways you spend your money. Somewhere in there you should locate your problem.
A list of common culprits and their remedies:
Excessive ATM withdrawals – Place yourself on a ‘cash’ allowance by getting a set amount of cash each payday and limiting yourself to only that amount.
Impulse buying – It is easy to get caught up in excessive impulse buying. You may need to make yourself stay at home instead of going to the mall. Only go out to shop when there is a viable reason to do so.
Eating out or going out too much – This one is a real budget buster! You are going to have to budget your dining out and entertainment expenses and stick to the budget. Invite friends over instead and have potluck!
Credit card payments eating up your discretionary funds – This is an all too common culprit in this day and age. Accepting too many offers with inviting rates or terms can leave you with major payments on maxed out cards where making the minimum payments doesn’t really solve the problem. It is time to consolidate and alleviate the problem debts.
Some more difficult culprits and remedy suggestions include:
Living above your means – This one is easy to create and harder to alleviate. Downsizing is your only answer. Trade the luxury car or SUV for one more economical and with lower payments; renegotiate a new payment plan with your mortgage company or find a home with less rent; cut out the New York strips on the grocery list and settle for a nice sirloin roast instead; and try clipping coupons. Pay off high interest credit accounts.
Adjustable Rate Mortgages – With the state of the economy in recent years and the issues of the housing market, an adjustable rate mortgage may be killing your budget. A wildly fluctuating market can mean a house payment gone wild. Before foreclosure hits you, call your mortgage company and renegotiate your terms. They will work with you.
Lots of Insufficient funds or courtesy pay fees – If you consistently get charged overdraft fees or courtesy pay fees (where the bank pays the draft for a fee) and especially right before payday then you can get caught up in a vicious cycle, where eventually your entire paycheck is going towards these fees, then all legitimate payments start getting behind. This one is an easy fix really, but can be embarrassing if you do not keep a tight rein on record-keeping. Call your bank and tell them you want to opt out of courtesy pay. Just remember that you must do regular and detailed record-keeping to keep from having a check returned or a debit card payment denied.
There may be other reasons or a combination of reasons for the downfall of your credit; but by this point you should be able to see the cause.