5 Credit Fixes that May Solve Financial Issues at Home

Despite the fact that the economy is generally improving and many people these days are finding themselves on far firmer financial footing than they might have seen in the last few years, a large number of Americans are still struggling. In some of those cases, issues related to credit are often to blame.

Credit pitfalls are common for consumers and there's no shame in suffering a few of them every once in a while, but that doesn't mean they shouldn't be addressed as quickly and effectively as possible. One thing many consumers may not know is that their credit standings can have a direct impact on their finances overall, and therefore getting the former in order can help to shore up a household budget and generally allow people to live more financially healthy and fiscally conscious lifestyles. However, there are a number of approaches to take in this regard, and each will vary in effectiveness depending upon the person's borrowing history in general.

1. Cleaning up payment history
The single biggest factor comprising consumers' credit scores is their ability to get all their payments sent to lenders on time and in full. This consideration alone makes up 35 percent of a person's score and therefore needs to be watched closely to ensure full credit health. Generally, a missed payment will count against borrowers for several months or more depending on how frequently they happen; if borrowers can show that one such misstep is an isolated incident, by making all following payments on time, then their score may begin to level out after the typically sizable hit it likely took as a result of the missed deadline.

These mistakes can be problematic for consumers in another way even beyond the damage it will do to their scores, as in many cases, lenders will also apply higher interest rates and sizable fees as a penalty for a missed payment. Both these things can destabilize financial health overall, but the higher borrowing costs may have a more immediate impact on household finances in general.

2. Getting debt under control
The second-largest factor used to determine a credit score is the amount of debt a borrower owes versus the total value of their credit limits. The more they owe, the lower their score will be, and usually the best way to max out this portion of that rating is by keeping that "credit utilization ratio" to just 30 percent of the maximum allowed.

The prospect of cutting potentially thousands of dollars in debt may seem daunting, but the value over time is considerable. This will both reduce the monthly payout required by lenders — because monthly minimums will necessarily come down — as well as reduce the amount of money being added to that debt because interest charges will rack up far more slowly. That, in turn, gives greater financial flexibility down the road because it allows consumers to avoid higher monthly payments, and gives them the ability to devote that money to other aspects of their lives.

3. Keeping close tabs on all finances
This relates back to the previous two fixes, at least somewhat. Routinely monitoring financial accounts, whether it's online or through monthly statements, will give borrowers a good idea of where their money is going every billing period. This may help them to identify areas where they can improve — perhaps they're spending too much on frivolities and not concentrating enough on necessities, for example — and trim the fat from their budgets.

Where this can also help with regard to credit is by also allowing them to identify any charges they don't recognize, which may be signs that the account has been compromised by identity theft. If so, that can do major credit damage and needs to be reported to the lender that issued the account as soon as possible to curb the issue.

4. Finding more affordable accounts
One thing that taking the above steps can help with is improving scores to the point that borrowers may become eligible for new credit cards or other accounts with lower rates and fewer fees. Looking into these after doing a little rudimentary credit repair can in turn help to reduce borrowing costs overall and continue to help borrowers on the path to a healthier financial life. Often, new accounts can come with introductory interest rates as low as 0 percent, for periods of a year or more in some cases.

That, in turn, can help borrowers to more quickly cut their debts and get their budgets under better control.

5. Challenging unfair markings
Finally, borrowers should take the time to order copies of their credit reports regularly, and check them often for unfair markings that might otherwise be dragging down their ratings. Often, if these entries are discovered to be marring such a document, working with a credit repair law firm may help to sort the issues out quickly.