How to Attack a Bad Credit Rating
Many young people get into debt. Unfortunately, it is the way of the world that we live in now that debt is just a part of life. For the most part, it’s a good thing, but there are plenty of opportunities for things to get out of hand. And, when they do, it usually results in bad credit.
If things have got to the point where you have bad credit, then it is vital that you face up to things and take action as soon as you can. Bankruptcy could be on its way, and that is not something any young person should have to face. However, don’t panic; with a lot of focus and determination, you can start rebuilding your credit scores straight away and start to turn your situation around. It can be a long road to travel, but this advice can help you get closer to where you want to be.
Checking Your Credit Report
The first thing to do is check your credit report with one of the credit reference agencies (CRAs). Equifax is one the biggest, and you also have Call Credit and Experian. Make sure to check with all of them as different companies use different agencies. Even if you haven’t run up debt, mistakes – and criminal activity – can happen. So, if you see anything suspicious that you don’t believe you are responsible for, it is important to flag it up with the reporting company.
If you are responsible, it is important to identify what is making your score drop. Look for any missed payments or bills from creditors or service providers and make a note of them. They need to be targeted first, as they are causing the damage. However, don’t forget about any of your other regular payments. You will need to keep them up, or they will just end up negating all your good work.
Now you know where your problems lie, it’s time to think about how to clear things up. You will probably need to find some extra money from somewhere to attack the right debts. But, at the same time, you should be keeping up with your other payments, which includes mortgage, rent, utilities, food and living expenses.
Make a budget and take a look at where you can cut your spending – are you spending too much on nights out? Perhaps you can reduce the amount of clothes you buy each month?
It’s important to see this as a change of lifestyle rather than a one-off. Over-spending got you there in the first place, and there’s little point in building up your credit again if you are just going to end up in the same position again.
Pay Off Your Bad Debts
The quicker you pay off the debts that are causing your bad credit, the quicker you will repair your score. In most situations, you should avoid more debt to pay for an old debt. But, if you are careful, it can work well for you. You might find that taking out a new loan will be cheaper in the long term, or reduce your monthly payments to something more affordable.
However, you need to do a lot of homework. Find a loan calculator and enter the details to find out if the amount you will pay back by the end is worth your while. In some circumstances it won’t be, so avoid these loans. You should be looking for something that you can afford to pay back over a particular time frame. Make sure you can meet all those repayments, or you will just be making things worse.
Get A New Credit Card
It might seem counter-intuitive, but getting a credit card and paying back what you owe regularly is one of the best methods of repairing a bad credit record. However, it can be a dangerous game for the irresponsible.
Firstly, every time you apply for credit, it is recorded in your report. If you are denied it – for whatever reason – it could knock points off your score. Lenders will send you a letter to state the reasons for their refusal. It may not even be to do with your credit score, so never apply for lots of credit cards in a flurry of activity. If you are denied, just leave it a few months before trying again.
Secondly, once you have a poor credit history, lenders tend to charge over the odds in interest because you are seen as more of a risk. This means if you spend a certain amount each month on a card, but don’t pay the entire amount back before the due date, they will add the interest. Very quickly, you will find yourself in yet more debt.
Pay On Time
Make sure you pay back what you have spent each month, every month. As an example, you could pay for your monthly or weekly food shop with your credit card, and then transfer the full amount to your card straight away when you get home.
You need to convince creditors that you are reliable with your money. And prompt, regular payments are the only way to do this, so never miss payments, and never go over your limit. In fact, it is best to stay well within your limit – around the 60% figure – which will give the indication you are sensible with your money.
What NOT To Do
There are a lot of companies out there that proclaim they can repair your credit score for you. Naturally, they all charge a lot of money to do it, so avoid them at all costs. Particularly as it is likely that you have little enough money to spare! However, should you feel that you have no other option, bear in mind that you should never pay them until they have done what was promised.
And there you go. With any luck, if you have followed these tips you will be on your way to repairing a poor credit score. Make sure you keep up with those payments, and you will soon see your score start to get better.