Credit rating is an assessment of borrower’s creditworthiness and financial status. Loan companies check your credit rating before they allow you to take new loans. Since in the United States the credit rating data is to a great extent public, it’s also used for many other purposes. For example, people with bad credit rating can have difficulties when searching for a job, because many employers check candidate’s credit rating before making a decision.
Bad credit can harm your financial planning and career prospects in many different ways, and that’s why you should work on repairing your credit history and keeping it good. There are many different ways how you can keep your credit rating afloat and thus, be eligible for future loans.
Review your credit reports
You need to review your credit reports on a regular basis. Companies that calculate your credit score, often miss some information or enter inaccurate data. Regular credit checks will help you to file a complaint in time. Companies usually solve these disputes in less than 30 days. After they’ve corrected your credit information, they will contact other credit agencies, as well as your bank, and report your new score.
Plan your credit repair
Good planning is essential for repairing your credit history. In the next few months, or even years, you’ll need to joggle your debt and income and make sure that you don’t miss payment deadlines. Before you make a plan, you will need to create a clear distinction between your wishes and needs. Don’t try to satisfy your luxury wants before you have an extra cash on hand. If you have problems with creating an optimal plan, you could contact companies that deal with these kinds of problems and can help you repair your score.
Create payment reminders
Your smartphone can help you a lot when it comes to repairing your credit score. Paying your bills on time is the most important factor for calculating your credit score. That’s why you should set reminders on your phone, so you don’t miss the payment deadlines.
These are even better than phone reminders. If you don’t have a problem with paying off your loans, set automatic deductions on your bank account for all of your loans, credit cards, and utility payments. When setting these deductions, make sure to coordinate them with your income deposit dates.
Stop using credit cards
Credit cards are the most volatile type of payment for your credit report. They come with a huge interest, and people use them without thinking about the future debt. In addition to this, banks are very aggressive when it comes to credit card debt collection, and they will notify the credit bureaus in no time. Try using cash or debit cards, but don’t cancel your credit card accounts because if you still have some debt, you will have fewer means for paying it off, which means that your credit score will still suffer.
Setting up a budget
Budgeting is a great skill that can help you save money and easily repay your debt. It’s a plan that connects your income with your expenses. Before creating your monthly budget, you should try to lower your expenses. If you are good at budgeting, you can even manage to put some money aside. Most household budgets set 50% for fixed costs (loan payments, mortgage, utility bills, etc.), 30% for flexible spending on groceries, clothes, and entertainment and 20% for financial goals, like increasing your savings, investing in stocks or retirement fund.
Pay back the high-expense debts
We’ve already mentioned that credit card debt is the most volatile type of debt you can have. Other short-term debts can also be very expensive, which means that you need to pay them back first. Sometimes it’s much easier to take a new loan, collect life insurance policy or put another mortgage on your home than paying back the credit card debt with your regular income. Still, if you want to use some of these ‘extreme’ solutions for paying back credit card debt and repairing your credit history, you should also change your old buying habits.
Get a secured card or loan
Secured credit cards come with a fixed balance. A lender keeps you deposit and uses it to pay back your debt. You can also add money to your balance each month, which will allow you to increase your credit card limit. Secured bank loans are based on the same principle and they are great for repaying other more volatile loans. Banks use your savings as a security and allow you to pay back your loan in small monthly payments with 2-3% interest.
The key for repairing your credit history is knowing your debt and dealing with it in a timely manner. That’s why you should be open and honest with your creditors. If you are late or you have troubles with repaying your loan, let them now. Most lenders will be willing to work with you in order to avoid a long and tiresome debt collection process.