Learn how to improve your credit score when you have defaults on your record.
A credit score is a number that represents your repayment habits, credit history, credit mix, and how you manage your debts. In short, there are various factors that credit bureaus consider aside from your outstanding debts and how good you are at paying them on time. A credit score speaks so much about your credit worthiness or your ability to repay your debts.
Don’t miss your payments
Don’t add anymore to those negative entries. If you have been missing out on your payments lately, it is time to repay them. Look into the reasons why you don’t make payments on time. For example, if it is just simple debt management, you can consider debt consolidation loan, automated payments and setting up a debt repayment reminder. Or, if you are married to someone who is financially responsible, maybe it is time to ask for your spouse’s help in debt repayment.
If you have existing installment loans, don’t delay the payment. It’s either you pay it with your income, or you get a balance transfer card with zero interest to avoid defaulting on payments once again. Getting an auto debit facility to take care of your credit card bills payment can also help you avoid forgetting your payment schedule. When you have a little extra, it would also help if you prepay your current loans—making a little extra payment would lower your interest and give your credit score a little push. And, don’t forget your utility bills-missing payments on your electricity and internet could lower your score as these things are also reported to the credit bureaus.
File a dispute
Check if the account belongs to you. Watch out for clerical errors such as incorrect name, account, dates and amount of debt. You can also use DIY Clean Credit tool to help you discover inaccurate entries that could lower your credit rating.
It is advisable to request for a copy of your free credit score sheet once a year, to know your credit status. You can file a dispute with each of the major credit bureaus in the country, or you can simply report those inaccuracies to the concerned financial institution. If they find your dispute valid, they shall make the necessary correction and update the information with the rating agencies.
Be loyal to your banks or creditors
Don’t cut ties with your oldest credit card provider-because the longer the credit history, the higher the score. As long as, you also pay your payments regularly, you have a good credit mix and you keep your credit utilization at the minimum.
While there is nothing wrong in looking for lenders that offer low interest loans, staying with a particular creditor for a while could boost your credit score. One of the parameters of a good credit rating is having a lengthy credit record. For example, if you have been taking loans for two banks and you are using their maximum credit facilities, they may be a little bit more lenient to you since you have been a loyal debtor already.
Having many credit lines or loans would also have a huge impact on the calculation of your utilisation ratio, which in turn would lower your score. Another dangerous practice is rotating the credit card balance from one credit card to another—an indicator that you don’t have enough money to cover your debt repayments. But, this is also a good alternative for those who are trying to save money on interests. But, be careful when you do this because if you keep on repeating this option, you will eventually ruin your creditworthiness.
Create a budget that you can live with
It’s not in the amount of money you have, but what you do with it that determines whether you can manage your debt wisely or not.
A budget can help you stay on track even in the midst of unavoidable circumstances that could tempt you to default on loan repayments. A sound budget can help you save money for emergencies, invest something for the future and pay off debts before they begin mounting on you. It could also help you avoid being labeled as bad credit, which is not good especially if you plan on getting a mortgage, a new credit card or availing loans for urgent expenditures. While there are specialist lenders around who can provide you with unsecured loans despite having a bad credit history, nothing beats the confidence of someone who has a good and clean credit record.
Lenders want their money returned to them safely and on time. If you don’t have assets to secure your loans, you have to prepare for higher interest rates and probably higher fees to get the loan. But, you can do it the simpler way—get your credit cleaned up, remove the defaults in there are and start fresh with good debt management habits.