A Guide To Repairing A Bad Credit Rating
A poor credit rating is generally the result of borrowing too much money and failing to make repayments on time. Your credit rating is a record kept by credit rating agencies of all of your lending and repayment habits. It is designed to give creditors a clearer idea of the risk that you pose as a debtor, and can help them to define the terms of lending.
A bad credit rating can be problematic in a lot of ways. Creditors are less likely to lend large sums of money to someone with a poor credit rating, and in some cases will refuse to do so. The terms of your loans will often be determined by your credit rating too, and a poor rating often leads to higher interest rates and higher fees. In other words, lending is not going to be as easy, and the terms will be worsened.
Avoiding Bad Credit
Whether you are new to the world of credit, are looking to keep your rating positive, or want to break free from a bad credit rating, it is important to know what to avoid. The following tend to negatively affect your credit rating:
- Getting into large amounts of debt, as this suggests that you are financially overstretched.
- Missing, or making late payments on any credit, from mortgage to credit cards, and even utility bills.
- Applying for a lot of credit at once. Instead you should apply gradually.
- Having credit cards open that you do not use.
How To Repair A Bad Credit Rating
There is no quick way to repair credit rating. You need to be able to prove in the long term that you can borrow, and make repayments responsibly, as agreed with your creditor. If you have a bad credit rating then you basically need to stop borrowing, and focus all of your financial energy on paying off your existing debts on time. Begin the path towards responsible lending. Here is a step-by-step guide to help:
- Stop borrowing. Do not take out any more credit until you feel that you are in total control of your existing debt, and are making repayments at a decent rate.
- Cancel any unused cards, and consider cutting up any existing credit cards if you struggle with your spending habits.
- Make sure that you are on the electoral role. Not being correctly enrolled can damage your credit rating.
Long Term Repair:
- Make all of your repayments on time. Focus on hitting the minimum payments first, so that your credit score doesn’t take any more hits, and then you can begin planning a strategy to tackle your debts.
- Budget like you have never budgeted before. Make cuts to your spending, examine your income, and use any money that you can save to put back towards paying your debts, and improving your credit rating.
- Paying off high interest balances first is the most mathematically correct way to pay off your debts, but some people prefer to get the small debts out of the way first. Whatever tactic you choose, paying down your balances, and keeping them low, is a sure fire way to repair your credit.
- If you are in control of your debt again, and only if you are, then you could consider scoring some points for your credit, by responsibly lending and making repayments. You should only consider this once all of your current debts are pretty much clear, and you are on the road to a positive rating.
If you are struggling with your credit rating, especially if you cannot make the minimum repayments required to keep on top of your debt, then you may want to consider professional advice. There are many debt solutions available if your debt problem becomes severe, and some of these can help you to improve your credit rating in the long term.