Bad credit is a real concern when it comes to taking out a loan. Despite several lenders accepting applications from bad credit borrowers, it is not feasible all the time to qualify for a loan. Now is the festive season and you may have taken on a debt to fund your holiday expenses.
You may not realise it now, but as you get out of holiday spirit you will find that you have burnt a big hole in your pocket. After New Year celebration people find themselves struggling to pay off the debt and this can result in a poor credit score.
Once your credit score has fallen into poor category, you will not be able to conveniently borrow money down the line. Well, if you have a bad credit score, you can repair it, but there are certain things that you must avoid if you are serious about improving your credit score.
Things that you must not do to fix your bad credit
Here is what you can do to achieve your goal:
Failing to establish your credit score
If you have a bad credit score, you will have to improve it anyhow. You do not seem to find the way to establish a credit score but you can do it. Instead of applying for a new loan that you will get at a high interest rate, you should apply for a secured credit card.
By making monthly payments on time you will be able to build your credit. These cards will be secured against cash deposit in your savings account, so you cannot access them unless you have pay off the debt. Once you settle your account, your credit score will go up and you will still have your cash deposit in your savings account.
Some people, in order to improve their credit score, take out small loans like instant 24 hour loans but these loans cannot help you solve your problem because they are paid off in a lump sum.
Instalment loans help build your credit score because you pay down the debt over an extended period of years. When you successfully manage to pay off the debt over time, it shows your financial commitment, which cannot be measured through small loans.
Making late payments
Another thing that you should avoid in order to improve your credit score is making late payments. If you have already a debt, you should ensure that you do not fall behind repayments. If you cannot remember due dates because of multiple debt, you should mark dates on a calendar so they do not slip through the cracks.
Note that missed repayments are reported to credit reference agencies and as a result your credit score will keep going down. If you make a payment delay by a month, you can escape the report to credit bureaus but you will still be liable for paying penalty due to late payment.
If you suspect that you will not be able to make the payment on time, you should immediately talk to your lender and inform them of your financial condition. They will likely you put you on a different repayment plan.
You should also be careful about your credit card payments. Failing to pay off the balance within the grace period will not only attract hefty interest but your credit score will also be affected. Make sure that you pay your utility bills on time as well as your credit report records your track of utility bill payments. If you do not make bill payments on time payments, your credit score will plummet.
Using only credit cards
You should have a mix of credits to prove your lender that you can manage to pay off the debt. Credit cards are essential but if you have only credit cards on your report, it is not a good sign. This is because you are to pay off the balance in a lump sum as soon as the bill is generated.
This may not give an idea to a lender about your financial commitment. Lenders want to see how capable you are with budgeting when it comes to paying down the debt over a number of months or years.
Since your financial condition cannot be same throughout the debt life, your timely payments will be a good proof for trusting your financial commitment. There are several big loans like auto loan, mortgage or long-term secured debts that you can qualify for when you prove financial loyalty. This is why try to have some instalment loans online in Ireland on your credit report.
Closing old credit cards
You may be tempted to get rid of all of your old credit cards, but it may be appropriate for you to keep them open. When a credit score is calculated, debt utilisation ratio accounts for a large percentage of it.
If you do not close your old credit cards, your credit utilisation ratio will likely be low because of the available balance to utilise for debt. However, you will have to analyse if it is costing your annual fees. If you decide to close your old accounts, remember that your purpose is to improve your credit score.
The bottom line
If you have a bad credit rating, you should try to avoid doing things mentioned above so you can ameliorate it. The better the credit score is, the better the interest rate will be.
Hudson is a graduate of banking and finance and works as a financial consultant at MyLoansBoat. He has a professional qualification to counsel people about money management. At MyLoansBoat, his key duties include shortlisting applications of borrowers and counseling them about credit score improvement, building an emergency cushion, retirement funds, and getting rid of debt. He is an ardent reader of finance books and uses the gained knowledge to help people with their finances. He also writes for the company’s blog on various topics like budgeting, investing, saving, debt management, joint finances, and the like. His aim is to dedicate his life to helping people have a debt-free life.