If you’re one of the many people who have faced some financial ups and downs over the last few years, then your credit score may have taken a hit. Data shows that lowering credit scores have been one of the biggest consequences of the long running financial crisis and seemingly endless recession.
As your credit score determines whether you can secure credit in the future, the interest rates you’ll have to pay and even your insurance premiums, it’s important to know how to repair your broken credit score.
Here are 7 tips for how best to go about repairing, rebuilding and protecting your credit.
1. Check your credit report is correct
This is something that can easily be overlooked. Don’t assume that your credit score is 100% accurate. After all, it’s bad enough dealing with the consequences of your past actions, let alone being penalised for financial missteps you didn’t take!
Approximately 70% of all credit reports have some form of error buried in them, so it’s feasible that yours might too. Get a free copy of your report and carefully go through it to find out whether mistakes have been made. If they have, then systematically rectify them.
2. Make payment plans with creditors
If you’re struggling to make regular payments, then contacting the creditor and working out a plan is always better than letting it slide. Creditors are generally happy to listen and work with you to produce a payment plan that can be managed – remember that they want to recover the debt.
3. Always be on time with payments
It always stands you in good stead if your payments are made on time. Credit scores are calculated based on your payment history, so the importance of this can’t be underestimated. The best (and easiest) way to make sure that payments on any debt, and bills such as rent and utilities, are set up to regularly come out of your current account.
If you have everything automatically set up then you know you don’t have to worry about remembering to pay on time. However, you must make sure there’s always enough money to cover the outgoings, otherwise you could be subject to an overdraft fee and , even worse, a rejected direct debit request.
4. Open more credit
It may seem counter intuitive, but it takes credit to build a good credit history. Ask your bank to open a secured credit card, which allows them to collect any missed payments from a special savings account set up for you. These aren’t difficult to get, as the bank’s risks are minimised, but you may need someone to counter sign for you.
5. Get a store card
These are only a good idea for building credit, not to rack up more debt. The idea is to take one out and conscientiously make regular payments on it. After a few months of making regular payments (pay the balance in full each time), then you will have more chance when applying for a credit card. The store card will show the bank that you can keep up to date with payments, and therefore they will see you as lower risk.
6. Keep credit cards open
After your payment history, the next important factor when your credit rating is calculated is the amount of credit you have. Pay as much of your credit card debt off as possible every month, but don’t close your credit cards, keep the cards open.
The amount you owe as a percentage of your credit is the important figure. It’s not advisable to open lots of new cards in a short space of time though, as this could adversely affect your score. It’s about slowly and steadily building up a picture of good credit.
The longer you’ve had credit cards open, the better. Providing they only have a minimal amount on them, then they are counted as credit history. The longer your credit history, the better for your credit report score.
7. Don’t search for new credit all at once
Searching for a single loan within a short period is viewed in a more positive light, than if you have made lots of searches for endless new sources of credit.
Follow these steps and you should be on track to improve your credit score. If you need any help and advice regarding credit, contact Turner Little.