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.

UK House Prices Set To Rise Even Further

UK house prices, according to the Halifax’s latest house price survey, have risen by 5.4% in the year to August. This is the highest annual rate since mid 2010. The measure also revealed the average price of a house also went through the £170,000 mark for the first time in half a decade. One thing to note, is that the figures are still very much below the peak of the market in August 2007, when the average price was almost £200,000. The Surveyors explained that housing market activity was up due mostly to an improving economy, low interest rates, and government-backed schemes such as the much-loved Help to Buy. This scheme offers buyers a government-backed loan of up to 20% of the price of the property.

Nationwide reported, earlier this month, said house prices in August were rising at an annual rate of 3.5%, slightly lower than the rate in July. The Nationwide survey gains its figures by comparing the prices in one month with the same month a whole year ago. The Halifax survey, on the other hand, compares a three-month period with the three-month period in the previous year. The Halifax survey has estimated that the average price of a house or flat in the UK is currently £170,231. The last time average house prices were higher than £170,000 was in September 2008.

Mortgage approvals for house purchases, which are often used as an indicator of completed house sales, rose by 10% between the first and second quarters of 2013. In July of this year, there was a landmark 60,600 approvals made. This was the first time the number has exceeded 60,000 since 2008. The rise in market activity, prices, and the Help to Buy scheme, all have increased fears that the UK could be heading for another property bubble. Mark Carney, governor of the Bank of England, said last month that he was “acutely aware” of the risks, and had a “toolkit” of measures he could employ to combat the seemingly unrestrained mortgage lending.

Matthew Pointon, property economist at consultancy Capital Economics, expressed his opinion: “A short-term imbalance between housing demand and the number of homes on the market is driving price increases. But the rise in wholesale interest rates seen over the past few weeks may soon start to feed through to mortgage rates, dampening demand.” Some experts have pointed out signs that mortgage rates may just have bottomed out, with some lenders increasing rates earlier this week.

Bank of America Fined for “Hustle” Fraud

Bank of America was recently fined $1 billion for fraudulent mortgages sold to Fannie Mae and Freddie Mac plus civil mortgage fraud Wednesday. The allegations include the surpassing of all loan “slowdowns” in their “Hustle” system, including quality control nd mortgage quality checking during the national financial crisis of 2007 to 2009.

The federally backed mortgage buyers Fannie Mae and Freddie Mac had at least $ 1 billion in losses for “defaulted” mortgages sold by Countrywide Financial and Country Wide Home Loans, which were picked up by Bank of America after buying Countrywide’s operations in 2008.

U.S. Attorneys made a 46-page complaint against Bank of America stating allegations that they removed underwriters, quality controls and urged many unqualified personnel to ensure that they gained more profit after selling the labeled “good loans” to nationalized mortgage buyers.

“Hustle” was a system that compensated Countrywide employees with incentives based on the number of mortgages they sold, not based on the quality of mortgages that ultimately removed the calculation of loan integrity. Unqualified employees were given critical underwriting tasks and even answered borrower questions regarding the deals.

Bank of America’s shares dropped to $9.31 after the news of the lawsuit was publicly released, down five cents. Shares began to rise up again in the after-hours

Source: USA Today

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