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How to fix a bad credit rating

Bad credit does not have to last forever

Bad credit is an unfortunate reality for a large number of consumers who may have amassed credit card debt above and beyond their ability to make the payments. In some cases, bad credit has led to the need to apply for a so called bad credit loan to pay for an emergency bill, a bad credit mortgage - also known as subprime mortgage - to finance a home purchase, or a bad credit car loan simply because there was no other way to replace a car.

It's a distressing situation to be in, but there are ways to get through this period in your life.

Bad credit and higher interest rates

All of these bad credit personal loan products have one thing in common: they are expensive for the consumer. The interest rate is most likely sky high when compared to similar loan products for consumers with a good credit history.

These added costs further zap your already precariously tight budget so it's crucial that your manage your debt properly and do everything to avoid it in the future.

Leaving bad credit behind

There is good news! Bad credit does not have to last forever. Instead, there are many ways of dealing with it, although none of them are quick fixes. You must stop applying for more credit and instead focus on repaying the debts that are currently outstanding. Even as little as a 12 month history of paying bills on time across the board will greatly lift your credit score and better the odds of not having to sign up for cost prohibitive bad credit loan products, mortgages and also car loans.

Start by understanding your credit situation. Your credit record is what banks and other lenders will review before you get a loan or even a mobile phone contract. You can get a copy of your credit report within a week or two and for free with certain credit information companies. Many will provide a quicker turnaround for a fee.

Your report will include information about bad debts, when you've defaulted on money owed or when providers have been unable to contact you regarding a debt.

Cleaning your credit history

Not all negative indicators in your credit history will necessarily be valid. If a mobile phone provider, for example, has an unpaid bill listed on your file that you are confident of having paid, you should contact them seeking an explanation. Often, these listings could just be bills that were never even received because you moved house.

Improving your credit record

To get your credit record back on track, hiding from credit situations is not really an answer. Even careful people who have never even had a credit card or used finance for a car or furniture can get rejected simply because they do not have credit history at all!

You will need to start using what credit you can get smartly. Meet every one of your repayments consistently. Use credit for furniture or electrical purchases and pay them off exactly as required or even more quickly if you can. This does not necessarily mean overspending or buying things you do not need, but putting what purchases you do make through any credit card you do have, but then paying that off immediately and well before deadlines. Any of your bills, petrol and gas, supermarket shopping and so on can be paid in this way.

If you lack discipline with money, have your credit card paid automatically from your wage account and be sure to prioritise that before you budget money for entertainment. Budget to save before you budget to spend!

A shoulder to lean on

Again, if discipline is not your thing, never be afraid to seek help, not always borrowing money from friends and family, but asking them to help you stay on track with your bill payments, installments and so on. Your motivation is peace of mind and a more enjoyable and relaxing life in the future.