If you are in debt and unable to honour your financial commitments such as your mortgage or card bills, sometimes even your rent and utility bills, you have developed bad credit history. Each missed, or even late payment, is reported promptly to the credit bureaus who maintain your credit history and gleefully display it to anyone who looks it up when you approach them for a loan.
This is bad for you because your loan application – ones which require a credit check such as short term loans, mortgages, business loans, and even short term business loans – will be rejected or you will be charged a very high rate of interest. And this applies to insurance policies too – your premiums will soar.
Scrutinise your credit history
When you find that your credit history is going bad, you should promptly get a copy of your credit report from the credit bureau. You have a right to a copy of your credit report and you can apply for a copy online. The bureau may charge you a small fee to mail you a copy.
Once you have your copy go through it with a fine-tooth comb. Most of your bad credit will be due to errors in the report. These errors are mainly payments that you have made but the creditors have not reported them to the credit bureaus. They promptly report missed or delayed payments but fail to be as prompt to report payments you make. Report these errors to the bureau immediately. You will also have to contact the creditor to report payments you have made and mark a copy of your request to the bureau. They have to make corrections within 40 days in most states.
Then make a list of all outstanding debts reflecting on the credit report. Pay off the small ones as soon as you can and deal with the larger ones accordingly. Following are ways to repair your credit history:
Ways to repair credit scores
Bad debt credit card
There are a few very effective ways to repair credit scores. If your bad score is the result of outstanding credit card bills you could use a “bad debt credit card” to repair the score. This technique involves applying for a “Bad debt credit card” that is designed for the very purpose of repairing bad credit history. When it is issued to you, the card company will take over all outstanding card payments and report the cleared dues to the bureaus. This will immediately repair a lot of the credit history – though it will not wipe it out completely. Then with each payment you make towards the bad debit credit card your credit score improves a little. You also have to use the card to make purchases in order for the score to improve.
Debt consolidation loan
If your credit score is really bad and huge you will need to use a “debt consolidation loan.” This technique is used with the help of a financial advisor or professional who will have to use his good office with the lenders to get you the loan in the first place because no one will want to lend you cash with such a bad credit history.
This works like the card mentioned above. The loan takes over and pays up all outstanding debts, and allows you to repay the loan in easy monthly instalments that extend over a long period of time. This leaves you with a lot of money to take care of monthly expenses and the rate of interest is also comparatively lower that the interest of all the outstanding debts added up. It is also easier to manage one account compared to managing multiple cards, loans and mortgage accounts.
Using your Home Equity
As you repay your mortgage your share in the property increases and the share of the mortgage company decreases proportionately. If you don’t have savings or investments you can fall back on, you can use this equity as collateral to get a loan and clear all your debts.
Remember to be prompt with each repayment and ensure that it is reported to the bureaus. In time your credit history will healthy once again.