Bad credit is something we hear about a lot. For good reason. Bad credit can often be the first step in a spiral leading down into worse financial positions. It can majorly affect the amount of interest you have to pay on any of your loans. It can also stop you from buying assets like houses, cars, even computers. Above all that, even employers are well within their rights to look up your credit rating. Credit ratings are used by organisations to see how reliable you are, using any credit you have as an example. So what do you do about bad credit? How do you avoid it and how do you recover from it? The answer to both is actually the same set of actions you can take.
Learn what affects it
The first step to getting in control of your credit score is to learn what actually affects it and how much. The two biggest factors are payment history and amounts owed. How late you’ve been on payments makes a huge difference. For example, being months late as opposed to days will impact your score more greatly. How much you owed makes a difference, too. Owing a little is much better than owing a lot. But owing a little can also be better than owing nothing. Having and taking care of little debts can show your reliability in paying your debts. The longer your unblemished history, the better. There are more factors involved than just these ones, but they are the major ones.
Take a close look at your score
If you’ve been declined because of credit or you don’t know what situation it’s in, take a close look at it. Pre-emptively knowing your credit can help you make better decisions. For example, you might want to catch up on any debt before you apply for a loan. Or perhaps you notice something on the statement that doesn’t sit right with you. Something that might actually be incorrect. One of the ways how to fix and repair your credit is actually catching inaccuracies and getting your report repaired. Never take it at face value that your score is bad ‘just because’. Looking at it might show you ways you can easily give it a boost.
Avoid those big black marks
Of course, there are some detractors from your credit history that aren’t the result of mistakes. But rather, finances that have gone out of control. For example, declaring bankruptcy might free you from your debts. But you should expect your credit rating to be absolutely worthless for a long time after. Getting a debt charged off is another big black mark on any credit rating. If you fall far enough behind on your debt payments, your creditor may have your debt charged off. This means that they have considered you a loss, doubting you might ever have the ability to pay it all off. Even if you do manage to get right with them, the fact your debt was charged off will leave a big impact on your credit history.
Get better at paying debt
So, obviously the key to improving your credit is to improve how you handle debt. Debt is something a lot less of us should try to ignore. Being obstinate because you’re on a budget and find it incredibly difficult to pay it off will only get you further into trouble. Not to mention it will only make life more stressful for you. If your spending habits have you overusing your credit cards, cut them up. Instead of ignoring letters about your debts, pin them to a board so you know what you have to work with. Know where your debts lie and how much is owed. As well as how high the interest is. Use these to prioritise which should be paid off first.
Manage your finances better
Taking care of bad credit is not a matter of doing this and that and suddenly everything’s fine. Finding mistakes and paying off debts will reflect better for you but you need to think long-term. You need to get into the habit of being responsible with your finances. But it won’t cut it just saying it. If you’ve had trouble managing your finances in the past, start putting them on paper. Have a budget that you adjust by the week and the month. Learn every expense you have going out and where you can save. Organise your finances and over time, you’ll find your score getting better and better.