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5 Tips For Surviving the Credit Crunch

5 Tips For Surviving the Credit Crunch

The so-called credit crunch has been in the news for several weeks now. Lenders are now being much more careful with who they lend money to. Credit card users, even those who pay on time, every time, and more than the minimum payment are seeing their interest rates soar. Even those of us with good credit are suffering from this fallout. Small businesses that depend on credit to floor plan their merchandise are finding that their lenders no longer trust them as much as they used to, even if they have a perfect payment record.

Not only lenders look at your credit report, but so do prospective employers and insurance companies. So, what can we do to make ourselves as credit-worthy as possible? I’ll give you some vital, and legal, tips for surviving this credit crunch.

Review your credit report: You should review your credit report at least annually. It’s easy and free at annualcreditreport.com. This site will walk you through requesting credit reports from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. Each of these companies allows you to dispute incorrect information online. They will also allow you to add an explanation to any derogatory items.

Pay on time: This may sound like a no-brainer, but this is very important. If you find you are unable to follow the terms, you may be able to re-negotiate some terms. Credit counseling services can usually negotiate lower payments, lower or no interest and help you with a budget to pay everything on time and clean up your credit report.

Close credit card accounts: The more credit cards you have, even with a 0 balance, the more potential you have for a lower credit score. Not only does the score look at your payment history, but it looks at your open credit lines. You may have a perfect history of paying all of your debts, but your credit score is not perfect because you have the ability to borrow up to the credit limits, thus increasing your debt ratio. By closing un-necessary credit card accounts, you can increase your score.

Pay off credit card accounts quickly: When you have whittled down your credit card accounts to just 2 or 3, or less, pay these off as quickly as possible. Pay more on the higher interest cards to pay them off quicker. Once you have done that, then pay more to the rest of the cards. Again, look and see if you can close any and still keep a major card for emergencies. See if you can renegotiate the interest rates on your 0 balance cards as low as you can. They don’t make money if you don’t use their card, so they can usually lower your rate. Keep in mind, though, that they can also raise them any time afterward.

Give credit cards a break: For a while, try not to purchase anything with credit cards that you can’t purchase with cash. This gives you an opportunity to pay down your credit cards without adding any more principal. You may be surprised at how fast the balance can go down if you pay more than the minimum and don’t charge anything else.

These tips should help you survive the credit crunch not only intact, but in a better financial position than before. We can get through this, we just need to have patience and re-prioritize our purchases.