Rebuild a Credit Score Damaged by Debt

If you’ve had trouble with difficult debts and managed to pay them off, you probably breathed a great big sigh of relief the moment they were clear. But while you have every right to sit back and take a welcome breather from your worries, you might soon start to think about the next challenge: rebuilding your credit score. This doesn’t have to be a rush, but it will be important in the future if you ever want to take out credit again, whether it’s a mortgage, a simple credit card, or even a finance deal on a purchase.

Fortunately, rebuilding your credit score doesn’t have to be anywhere near as stressful and difficult as dealing with problem debts. There are a few steps you can take to help put your record back together.

Take a Look

It’s understandable if you’re reluctant to look at your credit report. You know it’s going to be bad, and the debts that got you into this situation are probably not happy memories, so why go out of your way to find out just how bad it is? The truth is, however, that it’s best to know exactly where you stand and how far you have to go. Obtain a copy of your report, and keep an eye on it throughout the process to watch how it improves.

Get a Credit Card

Your credit report is basically your record as a borrower, so there is one very useful way to improve it; borrow and pay back. To build up a record as a good borrower, you need to demonstrate that you can manage and repay debts Clearly you don’t want to take out a full-on loan or anything like that, so credit cards are the way to go. Get whatever deal you can get, and start to use it. Cards for poor credit tend to have very high rates of interest, but that doesn’t have to matter. Just make sure you pay it back in full and on time each month to avoid the issue of interest. Use it to buy things you could and would have bought anyway with cash (lots of little purchases will be fine), so that you will always have the money available to pay it off right away. This will build up a record of good, responsible borrowing and boost your report.

Know What Goes on the Report

As well as looking at your credit report, it is best to make sure you know what goes onto it. If you sometimes forget to pay your bills until you receive an overdue notice, this might seem harmless enough but it goes onto your credit report and brings down your score. Other things can be used as a surprisingly simple way to improve your score, such as making sure you are registered to vote. Familiarising yourself with the kind of things that can affect your score will help you make sure you are doing all you can to bring it up.

Reasons for a Bad Credit Rating

A bad credit rating can make it harder to take out loans and credit cards. They may mean you cannot take out new sources of credit, or end up with high rates on credit cards and mortgages.

If you have found yourself turned down for credit or been offered higher than expected rates, this is a sign you may have a bad credit rating. There are several things that might cause it, and if any of them apply to you it may be worth taking action to improve your score.

Missed Payments

Missing loan repayments or being late to make them is a key factor in getting a bad credit rating. This doesn’t just apply to loans and credit cards either. Missed or late payments for utility bills can also feature on your credit rating. If you have failed to pay back credit according to the agreement, this will make lenders wary of trusting you with money in the future and hit your credit score.

Even if you are meeting repayments, this does not guarantee your credit score will be left untouched. For example, if you are only managing to make the minimum levels of repayment on a credit card, it might have an effect on your credit score. This is because it could lead lenders to suspect you may be having trouble paying debts back.

Lack of Credit History

Some people think that if they have rarely or never taken out any form of credit in the past, this will give them a good credit score because they have no problems against their name. In fact, this is often not true. If you have no credit history or a very short one, you are an unknown quantity in the eyes of lenders. They cannot judge how reliable you are at making repayments because they have no past information to go on.

Unfortunately, good behaviour doesn’t always mean a good credit rating even if you have taken out debts in the past. If you have a history of taking out small debts such as credit cards and then paying them off on time, this might mean lenders still feel some uncertainty about how you would handle bigger debts. Though it may seem unfair, this may also lead them to see you as an unprofitable customer, as you do not accrue interest on debts.

Bankruptcy and Court Judgements

Another important factor that can hit your credit rating is the kind of financial issue that leaves an official record. If you have ever been bankrupt, this will have a very definite impact on your credit score. The same applies if you have ever entered into an Individual Voluntary Agreement. If a County Court Judgement has been made against you stating that you owe money, once again this will leave a black mark on your credit rating.