How To Improve Bad Credit Scores

Knowing how to improve bad credit scores is a skill you should take the time to learn as it will help improve your financial future.

If you've discovered your poor credit rating is costing you then, the following credit repair guidelines will help to put your finances back on track.

What Exactly Is A Bad Credit Score?

This is not an easy question to answer because there is more than one credit scoring system that is used by banks and other lenders. However, the Fair Isaac or FICO score is the system mostly widely used. Like all scoring systems the value of your rating is ranked on a credit score scale which is number range between a low and high number.

The FICO system uses a ranking scale from 300, which is the worst score you can have, to 850 which is the best. Not many people credit ratings fall into those two extremes however, the vast majority of scores are between 600 and 700. In the current economic climate a score that is below 600 would be considered a bad credit score.

Implications Of A Bad Score

The implication of a bad credit score can mean the cost of borrowing can go up because you are perceived by lenders as a greater credit risk compared to someone with a higher score. To offset this risk they can charge you higher interest rates which will increase your monthly payments.

As a high risk lenders may also impose more stringent lending restrictions that include higher down payments and processing fees.Other implications can also mean that you could have a higher percentage of your loan, credit card and insurance applications rejected.

How To Improve Poor Credit Ratings

Many people think that just because they have a poor credit rating that they are condemned to life of expensive borrowing and high interest rates. This cannot be further from the truth because the factors that cac cause a bad credit score are in your control. With a little self discipline and commitment you can improve your bad credit history.

Pay Your Bills Before The Due Date

One of the key factors that lenders can knock you down with is late payments. Before they lend you money they want to make sure you are able to pay them back. If you have a habit of missing your payment deadlines then you are sending out a clear message that you are not reliable when it comes to paying your bills.

Many people fall into this trap because they are disorganized with their payment schedules especially, if they are doing it manually. A good and easier solution is to set up a a direct debit with your bank. This facility debits your account and transfers the money automatically at and agreed time and date. In this way you can set and forget.

If you are finding it difficult in maintaining your credit card or loan payments then, you should try and speak to your creditors and negotiate a more affordable debt repayment plan. If you approach them and sincerely tell them that you want to pay off your debts and avoid defaulting they should be willing to do this. The mention of the word default will certainly get their attention. At the end of the day all they want is to get their money back.

Is Your Credit Report Accurate

Lenders can rely heavily on the information that is contained in your credit report. If you are not sure what a credit report is then, let me explain briefly. A credit report is produced by the 3 major credit bureaus TransUnion, Equifax and Experian. They collect financial data for your creditors regarding your employment and credit history, the type of credit accounts, outstanding balances and late payments. Lenders use this data to calculate your credit score.

It is not uncommon for these credit reports to contain mistakes and out of date information. This is because the onus is on you to check and report these to the bureaus and relevant creditors. Inaccurate and out of date information could have a negative affect on your credit score.

Check your report carefully and dispute any entries that are wrong. For example, if you have been unfortunate to go through bankruptcy this should expire after 10 years and should not remain on your credit file permanently. You can obtain a free credit report from the FTC website www.annualcreditreport.com.

Apply For a Secured Credit Card

A quick way to improve your credit history is to apply for secured credit cards. This type of card is a good choice if your credit history has been damaged by loan defaults, foreclosures or chapter 7 or 13 bankruptcy. They are easier to obtain as the holder has to use their own capital to establish the credit limit for the card. Like any card use it wisely by paying of the outstanding amounts in full before the due date.

Credit Counseling Advice

If you find yourself in a position where the debts you owe are too much for you to handle then, you may want to consider outside professional help such as credit counseling. They may assist you by helping you to develop budgeting skills and repayment schedules. Some of these services are fee based while others are non-profit. You may wish to check out the National Foundation For Credit Counseling for further information.

Pay Off Your Debts

Probably one of the most important ways that you can increase your credit score is to lower your debts. Those who carry too much debt will be considered high risk if they come asking for more. Before you fill out an application for personal loans make sure you pay off any outstanding debts first. If you fall behind on your payments then your accounts can be charged off which will involve credit collection agencies and this will be marked on your credit file.

Stay Within Your Limits

If your exceeding the credit limits on your cards then you could be hurting your score. It is better to stay within 30% of your limits as you will come across as a more responsible consumer.

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