You probably already know what “credit history” is. However, lets give the initiated a concise explanation before we proceed. Every time you fail to make a payment on a credit card, loan or in some cases, fail to pay your bills, your creditor reports the missed payment to the credit bureaus. The credit bureaus calculate your monthly credit score based on these reports from creditors and display it as a three digit number. The lower the number, the worse your score is, meaning that, your creditworthiness is nothing to be proud of and that you cannot be depended on to repay your debts. Who then would want to lend you money?
When you apply for a new credit cards, any kinds of cash loans or credit loans, or even (in some countries) apply for a rental property, the other party will check your creditworthiness with the bureaus. The three digit number the bureaus display against your name could spell doom for your future borrowing ability if you have a bad credit score.
Credit scores can be repaired
Thankfully we are not completely at the mercy of the creditors. A credit history can be repaired with a bit of careful planning. There are many ways to improve, or at times wipe out a bad credit history. This is done by repaying all outstanding debts. “But,” you may ask, “If I could repay all outstanding debts in one clean sweep, why would I be in debt anyway?” Smart question, but the fact is, you can’t! We are talking about ways to repay all outstanding debt and have money to meet monthly expenses too!
Help yourself – Inspect your credit report
First of all get yourself a copy of your credit report. You are entitled to one from each of the credit bureaus. Go through the report with a magnifying glass. You have to look for payments you know you have made but do not reflect in the report. You may have paid a credit card bill but it does not reflect in the report. This is because the card company never reported the payment to the bureau.
If and when you find any anomaly report it to the bureau immediately and send a copy to the erring creditor. They will have to make changes in your report within 45 days at the most.
What to do if your credit is bad
However, once you have gone through your report and have fount that your score is in bad shape due to your inability to repay your debts you could resort to one of the two following ways to easily improve your score:
- Use a bad debt credit card
- Get a debt consolidation loan
Bad debt credit card
A bad debt credit card is designed for people with bad debt. This card takes over all the outstanding credit card debts and consolidates the entire amount under one account. The bad debt credit card repays all outstanding debts and then you repay the credit card company in easy instalments each month.
Debt consolidation loan
A debt consolidation loan works exactly like a bad debt credit card, only it deals with bigger outstanding debts. If you are in deep debt you should consider approaching a finance professional to help you with a debt consolidation loan.
You will need his, or her, good will with the finance companies to get your application approved. Remember, with a bad credit history no one is going to even consider your application.
The debt consolidation loan will consolidate all outstanding loans, including credit card debts, and repay all your debts in one full sweep. Then you repay the debt loan over an extended period of time and at a much lower rate of interest that you would be paying the existing debts altogether, besides it is easier to manage and repay one account.
When your outstanding debts are paid your credit score improves immediately and with each repayment to the bad debt credit card company or the debt consolidation loan company, your credit score improves even more because that is what the bad debt credit card and consolidation loan is meant for. Each month they report to the bureaus every payment you make.
Remember that lenders cannot see the particulars of your creditors or the particulars of your credit history in your report; they just get to see a three digit number that they rate you by.
With proper finance management and guidance, there will come a time, very son, when you will have a perfect credit score once again.