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Your credit score is based on formulas that make no sense to us as consumers. No one considers your income or family size. It is just an arbitrary report card on whether you are likely to pay your debts. You are judged on factors such as how often you move and how often you change jobs. Successfully paying off a small account for a one-time purchase over several months can give you just as many points as paying off a much larger account in a single month. Credit scoring uses ratios, not dollar amounts. So if you have open accounts with a zero balance you haven't used in awhile, consider using them for small purchases. If you "reaffirmed" any debts after a bankruptcy, pay them on time. This will earn you additional points.
It will not help your credit score to repay items discharged in Bankruptcy. Once an account is delinquent or goes to collection, paying it off won't help - surprisingly, it actually hurts your credit to pay it because the length of time the derogatory information remains is measured from the date you made your last payment. And the fact is, once you are late, that goes in the report and doesn't change unless you successfully remove it through the dispute process.
Having good credit saves you lots of money in lower interest rates. How much? If you have a car loan of $20,000 with bad credit at 21% interest, your payments over a 5 year period amount to $541 a month, or a total of $32,460.00 for the life of the loan. But with good credit, the same car loan at 5% will let you make payments of $377 a month, a total of $22,620.00 over the length of the loan, saving you nearly $10,000.00. Having good credit has a cash value. Once you establish good credit, please resist the temptation to help out others that have bad credit. It is a certain way to lose your good credit and permanently create hard feelings.
Once you reestablish your credit, carefully consider what you really can afford. Just because you qualify for credit doesn't mean you should use it or even apply for it. Money experts say that your car payment should not be more than 11% of your monthly income. So if you earn $3,000.00 a month, your car payment shouldn't be more than $330.00. To have a $450.00 a month car payment, you should be earning at least $4,090.00 a month, which is $23.60/hour if you work a full 40 hour week. Anything more than that, you will have to reduce your spending on other things.. Experts also say that your housing costs should not be more than a third of your income.
I am often asked if getting married helps or hurts your credit. While marriage itself does not affect credit worthiness, if you apply for credit together, the person with bad credit hurts the person with good credit. Until the repair process is completed, don't apply for joint credit and keep your credit separate from your new spouse.
You do not need to spend hundreds or thousands of dollars to repair your credit. You just need to understand what getting and keeping a good credit score requires and live within those boundaries. There is no magic to the process of improving your credit score - it simply comes down to discipline and persistence.