Bad credit can cause you a lot of problems, from being turned down for a mortgage to struggling to get a phone contract. There are lots of ways you can rebuild your credit score and deal with bad credit, and alternative methods of borrowing if your credit score is too low for traditional loans.
Open A New Credit Account
It might seem like the last thing you need, but with poor credit you need a credit account to start rebuilding your score. Avoiding credit cards can make it harder to rebuild your credit score, whereas using one card sensibly can establish a good payment history and get you on the path to better credit.
A low credit score will of course make it hard to get approved for a new card, but there are options. Remember, each application affects your score, so don’t apply for too many cards in one go. Avoid subprime credit cards with high interest rates and high fees as you could easily end up in more debt. Avoid prepaid credit cards too as they don’t report to credit bureaus, so won’t help your credit score.
You could rebuild your credit history with a credit builder card. These cards are designed for those with poor credit, with low credit limits and high interest rates. If you get one of these cards pay off the balance every month to prove you’re creditworthy. Make sure you pay it off though, as the high interest rates could lend you in even more debt.
Bad Credit Loans
If you need to borrow money but have bad credit it can be hard to get a loan. However, there are loan options designed to help those with poor credit. Just be aware they will usually have much higher interest rates.
You may be able to get a secured loan. This means your loan is secured against a high value property like your car or your home, which the lender can use to repay the loan if you miss payments. These loans are high risk as the lender can repossess your property if you don’t pay.
If you have a friend or family member with good credit who is willing to help, you could try for a guarantor loan, like a guarantor loan from *Buddy Loans*. This means that if you miss a payment, your guarantor will be expected to pay what you owe.
A peer to peer loan may also be an option. Instead of borrowing through a bank or building society apply to an individual lender on a peer to peer lending site. You may be able to borrow more, with a lower interest rate.
Build Better Credit Habits
Be realistic and honest with yourself about how you got into bad credit in the first place. What bad habits caused the problem? Stop putting things on your credit card that you can’t afford. Pay off more than the minimum payment amount and never skip a repayment. Pay credit card bills on time, and if you can, in full.
Pay On Time
Payment history is a very important part of rebuilding credit. Even if it’s not credit, missed payments can end up on your credit report. Whether it’s a library fine or the electric bill, pay on time. Many businesses use collection agencies to chase late payments. If this happens, the late payment ends up on your credit record and can damage it even further.
Paying bills on time, like the phone bill or your internet shows your lenders that you are capable of paying on time and managing your finances. If you can’t pay on time for whatever reason, contact your lender. They want your money, so it’s in their best interests to work with you to make sure you can afford to pay them. They may be able to help you or be willing to rearrange payment dates to make sure you can pay. This can still go on your credit score, but it looks far better than a CCJ or a default.
Get On The Electoral Register
Putting your name on the electoral register is one of the easiest and fastest ways to improve your credit rating. If you’re not already on it, register to vote now, either online or by post. If you’re worried about the council selling on your data, opt out of the open electoral register, which can be used for marketing.
Credit reference agencies may use the full register, which can be a factor in your score. Being on the register can also speed up applications, as a lender can also use to check your ID and address to confirm you are who you say you are.
If you’re not eligible to vote in the UK and so can’t be on the electoral roll, you should send Equifax, TransUnion and Experian proof of UK residency. This could be utility bills or a UK driving licence or something like this. The agency can then add a note to verify your right to live in the UK. If you’re a foreign national but allowed to vote in local elections, you can be registered on the electoral roll as normal.
Check Your File
Check your credit file annually or before making any large application. If there are mistakes, even minor ones like a wrong address, they can have an impact on your score. Check your whole file, and report any errors to get them corrected.
Is your credit score linked to someone else’s? If you’ve had a joint account with a spouse, family member or house, your credit ratings are linked. If the other person has a poor credit score, this can damage yours. You’ll be financially linked if you have a joint mortgage, joint loan or joint bank account. In some cases, utility bills with both your names on can also link your finances. This should only happen if the company is sure you’re a couple, for example, your bills come addressed to Mr and Mrs. If you split up, or move out, notify the credit references to unlink your finances. Remember, you won’t be able to do this is you still have an open joint account or an outstanding debt you’re both liable for.
Keep an eye out for anything that looks fraudulent. If you can see anything you don’t think was you, for example, credit card applications you didn’t make contact the credit reference agency immediately.
If you’re in the UK, try and check your credit report with the three agencies; Experian, Equifax and TransUnion. Thanks to GDPR laws, you can now access your credit report for free.
Try To Avoid Moving A Lot
Having the same address for a long time makes you look more stable, and seeing lots of addresses changes over a short period can make a lender uncomfortable. If possible, try to limit how often you move home.
Don’t Use All Your Credit
Don’t always automatically borrow the maximum amount. If for example, you have a limit of £2000 on your credit card, don’t max it out. If you’re using only £1000 of your limit, you’re using only half of your credit utilisation, which looks much better to potential lenders. Try and keep your credit utilisation at 25% or less.
Beware Of Credit Repair
Some firms advertise that they can repair your credit rating. Most of these companies will just obtain your credit file and advise on improvements. You can get your report yourself, and shouldn’t pay a company to do this. You also don’t need to pay for advice. There are many free debt advice services to help you get back on track.
Check Old Accounts
Check for old accounts that show on your credit report. An old mobile phone contract with an old address, for example, could still be listed as active on your credit file. Having an old address on an active account can impact ID checks, as you’ll show as having multiple addresses. If you can see old addresses, update them as soon as you can.
Check Your Files After A Rejection
If you’ve been rejected for a credit application, check your file before you apply anywhere else. If you immediately apply elsewhere, you can get into a rejection spiral, where the multiple searches on your account cause the rejections.
If you get rejected, check the files immediately. You may be able to spot the problem yourself, and correct it before you apply again somewhere else. Using elgigibty guides can help you avoid rejections too, as you can be more sure of getting approved before making an application.
Being smart about how you use your credit, and being responsible about borrowing can help you to rebuild even the worst credit score. Be patient, as it can take time, but stick at it to clear any negatives on your credit file. Stay on top of your credit report so you’re aware of any problems, and work hard not to repeat your past credit mistakes.
