What steps can be taken to fix your credit score?
It’s a question we are asked a lot here at Moolr, but what can you do? Give yourself far better interest rates, as well as more chance of being able to take out a loan. It is possible. Find out when you read on how you can fix your credit score.
How can your credit score crash?
Two of life’s most stressful occurrences – divorce and bankruptcy – can wreak havoc on your credit score. Divorce can leave you feeling devastated emotionally, but it can also leave you with debts. These debts linger long after the trauma of the legal battle is over. During a divorce, it is important to be sure that your divorce decree separates all debts to who is responsible for paying them. Close any joint accounts that are paid off, and double check by ordering a free copy of your credit report. You can see what debts and accounts bear your name.
The decision to go through bankruptcy is likewise a painful experience that can level a blow to your credit score. However, the effect is temporary, and with consistent effort you can rebuild your score to a stellar rating. As long as the bankruptcy is listed on your credit report, your credit score will suffer. If your score was high – say, around 750 – a bankruptcy is likely to make it plunge by 100 points.
Steps to Rebuilding Your Credit Score
- Open a Bank Account – For those who have bad credit, opening a bank account may be easier said than done. You may have to check around, but there are banks that offer “opportunity” accounts to those who have bad credit. Just be prepared to live with limited services and higher fees until you are able to rebuild your credit.
You should also check with your local banks and credit unions, as they are more likely to be willing to work with you. You can find a credit union near you by going to the National Credit Union Administration website.
Credit Cards & Loans
- Get a Secured Credit Card – Obtain a secured credit card by using your bank account as collateral. With a secured card you can charge up to the amount in your bank account. Avoid cards that charge an application fee, and look for cards with low annual fees. Also, make sure to choose a card that will be reported on your credit report, and, if possible, select a card that will convert to an unsecured card after one year of making on time payments.
- Obtain an Instalment Loan – After working with your bank or credit union for several months and proving that you are a good customer, you may be able to convince them to extend an instalment loan to you. Keep it small – less than £1000, if possible. This can help you fix your credit score.
The purpose of the loan is not so much to make a purchase as it is to give you another opportunity to show how responsible you are about paying your debts. Keep the loan amount and the payment amounts small enough so that you are sure to be successful in making all payments on time. This is the time to show that you can make regular payments. The best way to do that is to set up automatic payments through your online banking system.
- Pay your student loans – If you owe money on your student loans, then make paying them a priority. These loans follow you throughout your life, and they cannot be discharged through bankruptcy. Once you are in repayment mode, student loans will appear on your credit report. Any missed or late payments will derail your efforts to fix your credit score.
- Become an Authorised User – You may be able to rebuild your credit by leveraging the good credit of a friend or relative and becoming an authorised user on their credit card. They must contact their credit card company and have you added to their account. That credit card will appear on your credit report, and your score will benefit from your friend’s good payment record.
- As an authorised user, you are entitled to a card too – but if you value the friendship, it’s a good idea to decline and not use the credit card at all.