How to Clear your Bad Credit Rating

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A bad credit rating can prevent you from obtaining a loan or can greatly reduce credit options available to you. It is important to do a credit check upon yourself. Credit rating data can go back seven years and holds a surprising wealth of information. Check your credit report occasionally to ensure there are no discrepancies. Your credit report can be obtained at no cost to you. Fixing a bad credit rating is far better than being declared bankrupt. Bankruptcy will see you selling all your possessions to pay remaining debts. Bankruptcy can affect your credit rating for 7 years.

It’s okay to dispute your credit report

The report will contain all overdue payments of 60 days or more. If you find any errors or unfair listings on the report, you should contact the companies immediately to rectify this error.

Pay off your debts

Try and pay off your debts or at least as much as possible. This will reduce your available credit to debt ratio. You can create a positive credit history by having credit accounts and paying them off.

Avoid defaults

If you find yourself in financial difficulty and unable to make loan repayments or any other outstanding repayments, contact your financial institution or lender immediately. Negotiations can be made to alter the amount of your repayment. Be honest with your lender because they will have heard stories from many other borrowers before you and can spot an untruth instantly. Liaising with your lender can save you from having ‘default’ placed on your credit file.

Use credit

It is possible to reverse a bad rating by using credit but ensuring you must make repayments in full and on time. Your good record will then override your bad record. This doesn’t mean you will have free rein with your credit card; it simply means that you can put utility bills and daily living expenses onto your credit card and pay it off in full every month. To guarantee this happens, organise direct debit payments from your bank account each month.

Eliminate unnecessary credit cards

Overused credit cards with late repayments can quickly establish a bad credit rating. You will quickly accumulate debt by paying only the minimum amount owing each month. It is a better option to pour any extra money into these cards to pay them off. This will be noted on your credit report. Store cards carry very high rates of interest, so pay them off and get rid of them.

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Sometimes money problems can become overwhelming. If you can’t see an end to the continual debt cycle and you feel you are not making any progress towards clearing your debt and gaining a good credit rating, seek counselling. There are many organisations that offer this as a free service to the community. If you are having difficulty with your mortgage repayments, contact your lender who will organise a review of your current home loan. There are always avenues open to you to clear your bad credit rating.