After Personal Finances Hit Bottom, Bettering Your Credit Standing Is One Way to Recover

Millions of Americans saw their finances hit the skids over the course of the last several years as serious financial issues arose both during and following the recent recession, leading many to wonder how they can best rebuild their fiscal lives. Fortunately, taking the time to try to fix credit can help to go a long way.

Credit repair is a great way for consumers to get their finances on track, often because the principles behind it, and doing what it takes to build a good credit score, track very well with living a healthy financial life in general. The ideals of making all payments on time, not seeking new credit, slashing debt, and so forth can all combine to significantly improve a borrower's fiscal situation and life in general if they are approached correctly and judiciously.

Ways to fix credit that improve other financial areas
Many borrowers may not know that the single biggest factor that goes into determining their credit scores is simply their past ability to get all their payments in on time. Payment history makes up 35 percent of a score all by itself, and therefore making efforts to ensure that not one deadline is ever missed is of the utmost importance when it comes to keeping a credit score as high as possible. Even one misstep, regardless of whether the deadline is missed by a day or a month, can significantly diminish a score.

So how does this affect a person's finances? When borrowers miss deadlines, particularly on credit cards, they may often have significant penalties to deal with as a result, and these can seriously impact their monthly budgets. For instance, many lenders will charge not only a late payment fee that can be rather high, but they might also apply a penalty interest rate for the balance in question, which is often far larger than the one they are used to paying. As a result, even that one missed deadline can end up costing borrowers significantly more than they might have thought.

Similarly, making more comprehensive efforts to reduce debt on these accounts will likewise have a positive impact on finances going forward, even if there isn't necessarily one in the short term. That's because the amount of debt owed to lenders — when viewed as a percentage of their total limits — makes up another 30 percent of their score. Lenders want to see this factor, often called "credit utilization ratio," come in with borrowers using just 30 percent of their credit limits or less. Consumers who work diligently to reduce their ratios to this level, or below it, will see benefits such as lower monthly minimums, as well as their debts falling far more quickly than they were before. That, in turn, frees up more funds that can be devoted to other types of financial concerns that may better serve a borrower going forward.

Another 10 percent of a person's score is made up of simply how often they apply for new lines of credit in a short period of time. Borrowers who avoid doing so will make sure that this portion of their ratings is being upheld, and also avoid adding new accounts that can significantly add to their debts if not managed correctly. That, in turn, leads to more monthly financial obligations which may sap funds that should be going elsewhere.

A good credit score also improves finances going forward
Of course, cleaning up credit has other benefits as well, including access to more affordable accounts in the future. Lenders tend to grant borrowers with strong ratings access to the lowest possible interest rates and far fewer fees than they might apply to accounts sought by those with more troubled borrowing histories. As such, borrowers who take the time to clean up their standings will necessarily be able to find more financially beneficial credit going forward.

Unfortunately, there are other aspects of borrowers' credit ratings that cannot be addressed simply by taking the time to make sure all accounts are being dealt with in the most responsible manner possible. This is because, in some cases, there may be unfair markings on many borrowers' credit reports that can have a massive negative impact on their standings if they go undetected. As a result, it is vital for borrowers to order copies of these documents as regularly as possible and check them over closely for any such entries. If these are discovered, it may behoove affected borrowers to work with a credit repair law firm in an effort to get them cleared up. Doing so may allow them to return their standings to where they deserve to be, and give them the ability to improve their finances going forward.