1. You can save you tons of money on interest. Paying interest can be a necessary, but since you get nothing in return for paying interest, you should try to pay as little as you possibly can. In order to show you just how much money on interest a lower credit score can cost you, let’s look an example of a 30-year home loan worth $200,000.
On a home loan of $200,000, if your credit score were in the 750 range, you could expect to pay around 4.75% interest on that loan (at today’s mortgage rates) – which would mean a monthly payment of $1,043.29 per month. If your credit score were only 100 points lower in the 650 range, you could expect to play closer to 6.25% interest – which would give you a monthly payment of $1,231.43. This difference of only 1.5% in interest would cost you an extra $188.14 per month, and a whopping $67,730.40 over the life of the loan.

2. Repairing your credit will allow you to qualify for a home or auto loan. Not only will credit repair help you to spend less on the loans you qualify for, but it will also make it so that you can qualify for a loan. If your credit score is less than 620, it will be difficult for you to secure financing on a new home purchase, or even on a new or used car.

3. Higher credit limits can provide breathing room in a pinch. Although it’s never a good idea to rely on credit cards or home equity loans for buying things we don’t need, sometimes emergencies come up that require us to tap into our credit resources. It can provide peace of mind to know that if you needed to, you have $10,000 or more in available credit if it became necessary.

4. Become financially independent. Nobody wants to rely on co-signers in order to qualify for a loan, or borrow money from friends and family for a down payment. Asking for help with financial burdens will often strain relationships with those closest to you. Plus, there’s a sense of freedom that comes with knowing that you are completely self-sufficient.

5. Save money on insurance premiums. It may not be fair, but some insurance companies actually consider your credit score when they determine what your insurance premiums will be. Fixing your credit score will help you save money on insurance.

6. Get a job. More and more employers are beginning to do credit checks on their job applicants. Whether or not it is actually the case, employers can view job candidates who have low credit scores as irresponsible. It’s hard enough to get a job in today’s economy without having to worry about losing points with your potential employer because of a bad credit report.

7. Credit repair is a process that takes time. Since you never know when you’re going to need to have a good credit score, it’s best to start the process of credit report repair as quickly as possible. Repairing your credit is a process that can take several years, so the sooner you begin, the better off you will be. You don’t want to wait until you find your dream home or the perfect car before you find out that your credit isn’t good enough to qualify to buy those things.

Your credit score is not determined by any one type of credit. Loans, credit cards, and other financial obligations all play a role. In general, credit cards are an important aspect in boosting credit scores because credit cards are an ongoing gauge of how well you pay back your debts, how you manage debt, and how responsible you are when it comes to spending. If you can maintain low balances, pay your credit card bills on time each month, and maintain a solid history of repayment, your credit scores will rise.

Getting rid of credit cards in an attempt to boost your credit scores will backfire. A better option is to choose one or two cards with a decent interest rate, and keep those accounts open and current. You don’t need to charge much – it’s actually better if you keep your purchases anywhere from 10% – 30% of your overall credit card limit. This demonstrates to creditors that you can be responsible with the credit you are given. It also makes it easier for you to pay off the credit card in full each month, which is another way to rebuild your credit scores.

If you have several credit cards, you may wonder which cards are best to keep, and which accounts (if any) you should close. In general, keep your credit card account open if:

You’ve had the card for several years. Having a long credit history is more beneficial than having a short one.

You have a balance on the card. Canceling an account while you still have a balance can wreck havoc on your available-credit-to-debt ratio.

The interest rates are low. Lower interest rate cards can not only save you money, but they can make it easier for you to stick to your repayment goals as well.

When should you cancel a credit card? In general, if the interest rate is high, or if the credit card company uses double-billing, it’s probably a good idea to get rid of that card as soon as the balance is paid off. The only exception to this is if the credit card is one with a long credit history. You don’t want to cancel your oldest cards, so in this instance, your best option would be to charge a very small amount on the card each month, and then pay it off again as soon as possible to avoid the extra interest hit.

If you are trying to rebuild your credit, you don’t currently have a credit card, and don’t think you can qualify to get one, try a secured credit card instead. With a secured card, you put down a deposit for a specified amount (usually anywhere from $200-$500) and in exchange you receive a credit card with a limit equal to the deposit. Charge only a small amount on the card, and then pay it off each month – this will let you build your credit, even if you don’t initially qualify for a regular credit card.

Regardless of which route you choose, getting and maintaining a credit card account is an essential part of any credit repair plan. Don’t assume that all credit is “bad” credit. If you want to be successful in increasing your credit scores, you’ll definitely need a credit card – just be sure to pick one that’s easy to manage, and don’t let the balances get out of hand.

Scenario 1: Refinancing High-Interest Credit Card Debt Using Home Equity

This scenario has been commonly used by many companies claiming that they can lower your credit card debt. By taking out a second mortgage using home equity, a person can pay off high interest credit card debt with the funds received. There are several problems with this scenario:

You must have equity in your home to qualify. This means that for new homeowners, this type of financing option is unavailable. However, in the current market, this is actually a good thing and here’s why:

Financing credit card debt through a mortgage trades an unsecured debt for a secured debt. This means that when you use the mortgage money to pay off credit cards, you’ve essentially tied your home ownership into your ability to pay off the debt. If for some reason you default on the second mortgage, you can lose your house. While credit card debt and late payments may be damaging to your credit, they are unsecured. The credit card company can’t take away your purchases made with the card, but the bank can and will take away your home if you default on a mortgage.

The last problem with this type of scenario is that it is not foolproof – if you decide to use your credit cards again for purchases, then your debt problem doubles. Many times, people who try to eliminate credit card debt end up with more credit worries as they have to make payments on two mortgages and the new credit card charges.

Scenario 2: Consolidating Student Loans

If you are making payments on multiple student loans, consolidating those loans can seem like a smart idea. In some cases it is, however, if you are still in school there are better options available.

• Forbearance – if you are unable to make payments, you may qualify for forbearance. There are several types of forbearance, including one that applies if you are not making enough money to meet all of your financial obligations.
• Deferment – this is usually the best option if you are still in school. Even if you are only taking classes half time, you can get a deferment on student loan payments. Just be sure to have your school verify that you are attending, and continue to take enough courses to qualify for in-school deferment.

Once you consolidate your current student loans, you cannot re-consolidate at a later time. Therefore, if there is a chance you will be taking out further student loans, your best bet is to use forbearance or deferment options, and only pay the interest on the loans until you are able to meet the financial obligation.