Your credit score means everything if you’re getting a mortgage or even just a contract on your phone. A bad credit score can make your life very difficult. There’s always a path of redemption, though. Let’s take a look at what makes up your total credit score first.
35 percent is your payment history or how many times you’ve met your repayments on debt, 30 percent is how much debt you have currently, 15 percent is how long your history is, 10 percent is your type of credit, and another 10 percent is how much credit you’re using right now.
You can focus on each of these things through a number of bad credit options. For example, you can get installment loans even with bad credit. Here are some of the things you should aim to do to repair your credit history.
Find Your Credit Score
You need to know how bad your credit score is before you can start repairing it. Furthermore, it’s important to check your history for any errors which may have crept in. If you do spot any errors, call your creditors and calmly explain the situation. Ask for any changes or on-going cases to be made out in writing. This is your defense if you think you’ve been badly treated by your creditors.
Make a Budget
If you have a bad credit score the chances are you’re also in debt. The reason why most people are in debt is because they’ve failed to live within their means. Start living within your means from this moment forward by making a budget. A budget will tell you how much you need to spend and how much you have to pay off any existing debts.
Grab those old receipts and bills and add them to a column on a piece of paper. Add up everything you spend and this will give you a reasonably accurate figure for how much you’re spending. Compare this with your income and work out the difference.
If you have more going out than coming in you need to start looking at the way you live.
Secured Credit Cards
Throw out your old credit cards and get a secured credit card. It’s barely worth calling them credit cards since they’re almost like debit cards. You put a certain amount of money into your account and you can use the money on your card to buy things. Once your balance runs out, you have to top it up again to use it. Despite the fact they don’t work like traditional credit cards, your payments will improve your score.
Beware of the high interest rates you might get on these cards. Pay in full every month and you won’t have to deal with them.
Cut Your Credit Utilization Ratio
In short, this means cut the amount of debt to credit ratio you have on your cards. Aim to have 20 percent at your absolute maximum. This means if you had a limit of $1,000 you would try to make sure you only have $200 in debt at any one time. Not only does this make any debt easier to pay off, it shows credit card companies you’re living within your means and being careful. It all improves your credit score.
Pay Your Debts
Since part of your credit score is based on how much debt you have and whether you’re making your repayments, it makes sense to pay down as much debt as you possibly can. Write down all your current debts and decide which ones you want to pay down first. Choose the ones with the highest interest rates.
For example, if you have any payday loans or credit card debts you should concentrate on paying these off before a five-year loan from your bank.
If you have problems paying your debts, negotiate with your creditors. Most just want to get their money back and they’ll happily reduce your interest rates slightly if you can show you genuinely can’t meet the repayments.
Getting a good credit score isn’t just about improving an arbitrary number. You want to keep your good numbers so you’re never in this situation again. Address the reasons why you got into debt in the first place. Unless you were hit by a family emergency, you were negligent in your spending.
The best way to be disciplined is to open another bank account. Keep one bank account for savings and another for your regular expenses. The regular expenses account is the one for your monthly bills and your debts. Never touch this account. Set up direct debits and let it take care of itself.
Anything left over can go into your savings account. It’s like an electronic budget. It automatically tells you how much you have left over to spend as you please. This will prevent any accidental shopping sprees!