Once you get bad credit your options seem to diminish. Not only is it hard to get financial products like car loans, mortgages and credit cards but it is now becoming common for your credit history to have an impact on the jobs you can do and the places you can live. It seems that any service you want to take is determined by your credit. For many the alternatives seem to compound the situation you already find yourself in. Yes there are products aimed at people with bad credit but the fees and rates are normally very high. So why are you being penalised? Well it simple, your credit score says to people you can’t be trusted. Sounds harsh I know and for many of us the reason we got bad credit was through no fault of our own like being made redundant or falling ill. However from now on if you want to take any service that needs a credit score, the providers will see that in some point in the past you did not pay your commitments and as such you are seen as a higher risk.
So what is a credit score? Well for most of us it’s a tool that people use to determine whether we would qualify for a particular service. The score is based upon information held by credit scoring agencies and uses mathematical equations to determine how lily you are to pay for the service you want. The credit score takes into account public records which show if you have been bankrupt or had any defaults lodged against your name through the courts. It also will show your payment record on other loans, mortgages or services you have taken. They will also look at how much you owe and to whom. In general having a long history of taking credit will improve your credit score. Perversely if you have never borrowed anything in your life your credit score will be low. On the other hand if you have too many accounts this will also be detrimental to your credit.
So how do you improve your credit score? Well the first thing is to get all your accounts back up to date. You can’t improve your credit if you are behind on your payments or are still missing the odd payment. Have a look at your commitments and then look at your income. If you can budget to pay your commitments do so. Cut your credit cards up so your not tempted to spend on them, don’t cancel them as keeping them open and paying down the balance will help improve your score. Work with your family to see if they can help by cutting down on expenses or giving you some money to get back on an even keel. If you have savings use them to get up to date with your payments. Don’t apply for any more credit as credit searches will be detrimental to your score. Pay off the most expensive and highest interest to start off with to snowball your way out of debt. Once you have paid one piece of debt off use the money that you used to pay on that one on another debt to create this snowball effect. If you find that there is no way that you can meet your commitments you might want to look at IVA’s or bankruptcy. Please note though these will not improve your credit rating but you may well be better off.
Once you have got back up to date with your debt you can start repairing your credit score and rating. You can start to apply for new accounts then pay them off showing that you can manage your money well. Supermarket charge cards are a good way of doing this as if you are paying for your shopping with cash if you put it on the card then pay it off it will show good payment discipline. If you struggle getting these charge cards then you could go for a secured credit card. This is a card which you actually put cash onto but which reports to the credit agency’s much like a normal credit card and helps to build a good payment history. Also don’t take your new credit to the maximum. The credit scores like to see that you are keeping your balances low and that you don’t use the accounts frequently proving that you do not have to rely on credit to live.
Finally it does take time to get a better credit rating so be patient. You need to prove that you are a good payer and that service providers should not be worried that there is a chance you will not pay. The benefits could be very rewarding; you could see yourself with a new house, new job and with more money in the bank if you are disciplined.
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