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The sad fact of life is that those of us with lower credit scores are at a distinct disadvantage when it comes to financial products. Yes, that is right the more we struggle with money, the harder lenders make it for us to climb out of the hole. Fortunately, there are some tactics you can use to repair your credit score, so you won’t have to worry about the negative impacts of a low credit rating, as described below. Keep reading to find out more.
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How bad credit can ruin your life
Aside from the emotional turmoil having credit that you are struggling to pay off causes, there are some very real and practical ways that a poor credit score can stand in the way of the things you want in life. Discover what they are below.
Bad credit will impact your chance of getting a mortgage
At some point in their lives, most people will want to buy a house, and unless they are sitting on a big pile of cash, they will need to get a mortgage to make this happen. A mortgage is essentially the most significant credit loan you will ever take on because the bank or lender will provide you with the funds to cover the cost of your home (minus the deposit), which you will then owe to them and will be expected to pay each month.
Unfortunately, if you already have a low credit rating, lenders are more likely to see you as a risk. This means that they cannot be sure you will pay back all the money, or make your payments on time. To counteract this risk, lenders will only offer a mortgage at a higher interest rate, which means you will end up paying back a significant amount more than you originally borrowed. However, with a healthier credit score, you can secure the lowest interest rates on your mortgage which makes it a great deal easier to keep up with each month and pay off in full over the long term.
Most of us have a mobile phone, but did you know that the contracts for these are also essentially a credit agreement? How they work is that the provider gives us the phone on the understanding that we pay a set fee each month which covers both the cost of the handset and the price of the services we use.
However, just like any other credit agreement, the provider will run a credit check to establish whether you are a risk or not, which again means if your credit score is low, you may be turned down.
Bad credit will impact your chance of getting loans and credit cards
There are many situations where we need to take out a loan or use a credit card for something other than a house or mobile phone, for example, to buy a car, or to cover the cost of redecorating a room in our home. Unfortunately, loans work in pretty much the same way as the credit agreements above, and that means those of us with poor credit scores are always going to be put at a great disadvantage.
How to repair your credit score
Now you know just how devastating an effect poor credit can have on your life, it’s time to discover what you can do to repair your credit score.
Don’t be left responsible for others’ money mistakes
First of all, before you do anything else, make sure that your credit score isn’t suffering because of mistakes that other people have made. For example, if you shared an account with an ex-partner and it’s still open, any activity on that account will impact your credit score.
Similarly, if you have any bills that they were responsible for but are in your name and address, it is best to get them paid off as soon as possible, and then claim back the money from them if you can. Otherwise, your credit score will suffer, and you already know what that means! Of course, where possible, never take out a credit agreement for someone else, even if it is something as simple as a mobile phone contract, and then you can avoid such issues altogether.
Build your credit score with more credit
It may seem counterintuitive at first, but it is possible to build up a poor credit rating, but taking out more credit. However, to succeed with this plan, it must be done in the right way.
First of all, you will need to focus on a single loan or credit card and make sure you manage this debt well, making payments on time and never defaulting. Of course, it can be tricky to find a lender that will grant you credit if your score is low. The good news is that by going to a licensed credit broker that can offer you a short term loan for bad credit you can get around this. Thereby, allowing you to build up your credit score once more.
Also, when applying for credit remember that applications and the checks on your score associated with them will register on your account for a portion of time. Indeed, these checks will lower your score in the short term, which means if you make lots of applications your score will be significantly lower. The bad news is that even if your application is rejected it will still have an impact on your score, so it’s best to wait several weeks in between applications or opt for a card or loan that will run a soft check to see if you are eligible beforehand.
Pay on time, every time
Believe it or not, people with credit cards that make their monthly payments on time will always have a better credit rating than those that do not take out any credit at all. The reason for this is that the credit rating system exists to help negate the risks to the lender. This means that someone who makes payments when they are due, and so has a high credit score will always be a better risk than someone that is unknown.
With that in mind, paying your credit bills on time each month is just about the most important thing that you can do to repair your credit score. Always cover the minimum payments, and where possible set up a direct debit to ensure that you never accidentally forget to make a payment.
Consolidate your debts
Of course, paying on time, every time is the ideal way to prevent your credit rating from dropping and repairing it once it has. Unfortunately, not everyone is in a financial situation to be able to do this. Indeed, many people get into trouble with credit because they overreach their financial capacities by taking out multiple credit cards, or because they encounter unforeseen financial circumstances, like losing a job which means they do not have the money to keep up with their monthly payments.
Fortunately, there is a tactic that can help, even if you do find yourself in such a situation. The tactic in question is to consolidate your debts. This means taking out a single loan to cover all the debts you owe. The advantage of this is that such loans often offer a lower interest rate and monthly payment amount, which means it’s far more affordable to make your payments each month. Which in turn means you can slowly but surely dig your way out of the credit debt hole, building up your credit score as you go.
