The Complete Guide to Credit Repair
Having good credit can be quite a boon to your finances in our modern society. However, as beneficial as a positive credit history can be, it pales in comparison to the difficulties you could face if your credit is so poor that it belongs in the bin. There’s no other way to face it: if your credit history is rubbish, financial stability and security are often out of reach. You’ll face major difficulties in securing finance with an unfortunate credit rating, and this is true whether you’ve ruined your credit accidentally or through circumstances that were no fault of your own.
It can be particularly soul-crushing to try to operate in this day and age without sufficient credit, as so many major milestones, such as purchasing a property, will be firmly out of your grasp. Yet there’s no reason to give up hope. The truth is that it’s entirely possible to repair your credit. There are a number of steps you can take if you want to rebuild your credit into something that doesn’t resemble something like London after the Blitz. Today, we’ll look into everything you need to know about credit repair, including how to understand your credit history, how to improve it for the better, and (most importantly) how to keep it that way!
Understanding Your Credit File
No discussion of credit repair can begin without going over some basics first. In this case, we will need to discuss the very thing that can be such a bother for so many of us when it comes to trying to secure lending: your credit file. Also referred to as your credit history, this all-encompassing file is your identity as a borrower. It contains details on all your financial history, as reported by your lenders, and your financial fortunes are largely dictated by the information recorded therein. You can find your entire financial history in your credit file, ranging from whether you’ve been on time paying off your credit cards, your mortgages or other types of lending, whether you’ve made late payments, and whether you have any missed payments.
Additionally, your credit history has loads of noteworthy data about not just how much debt you have but how you’re using it. This file shows your credit utilisation ratio — how much total credit you have and what your existing balance is — and how many times you’ve applied for credit lately. Credit referencing agencies maintain these files for lenders to make evaluations of whether you’re a good risk when it comes to extending you credit. A bank, building society, credit card issuer, or any other type of lender will look over your credit history and search for any red flags that indicate extending you credit is a poor choice; if you’ve been making the rounds and applying for credit helter-skelter, for example, each of those applications is recorded in your file.
Lenders pay very close attention to your credit file. If you’ve demonstrated that you have a tendency to not pay back your loans in a timely manner by making late payments or even missing payments altogether, you’re unlikely to be extended credit by a new lender. Likewise, if you’ve been applying for credit to several different lenders recently, the record of these multiple applications would not be reassuring to a lender either. Most prospective creditors would interpret this as you being either desperate for funds, incapable of being responsible, or both — and this doesn’t fill them with confidence that you’ll be able to make regular repayments against your balance.
You and Your Credit History
It’s clear that a bad credit can be crippling when it comes to being able to secure much-needed lending. Yet while it’s true that poor-to-middling credit can easily sink your next application, the good news is that you do have some recourse. In fact, you can, and should, periodically review your credit file to ensure there aren’t any mistakes. Errors on your file, such as loans being listed as not repaid when they already have been, could be having a negative influence on your overall credit. Mistakes on your credit history are much more common than you might think. The highly bureaucratic nature of credit reporting means that errors and omissions occur nearly every day, and you have the right to petition changes to be made to your credit history if you can prove an entry is incorrect.
In addition, you don’t have just one credit report. In actuality, there are three different major organisations that maintain consumer credit files, and that means you have three different credit files that are being maintained at any given time. These firms — Equifax, Experian, and Call Credit — don’t necessarily have identical information about your credit activity. It’s crucial to ensure that all three have their facts straight when it comes to your financial history so that all three files are up-to-date and identical. It’s your legal right to be entitled to a statutory report from these credit firms. Normally this could cost you a few pounds by using an online service, but there are ways to check your credit history for free — many of these services offer a 30-day trial offer that you’ll simply need to cancel before the next billing cycle.
Taking the First Steps in Credit Repair
Now that you’ve had the opportunity to learn about your credit history by requesting your own personal credit report (and you’ve corrected any glaring errors that you’ve found), you can begin taking the first steps in repairing your credit for a brighter financial future. At first glance, such a task might seem Herculean! A top tip here is to break it down into smaller, more manageable bits.
This begins by identifying which lenders on your credit history have negative things to say about your behaviour and then working with them, one at a time, to resolve your financial issues. Resolving these lending problems in this manner will take some time; this process is a marathon, not a sprint. Yet it isn’t impossible, even if it appears challenging. Perhaps the most harrowing part of the experience will be ringing up these creditors of yours and approaching them with your desire to clear your good name.
We’ll be honest: nobody wants to talk to someone they owe money to, especially if you’ve been lax in paying them back. It’s just not a pleasant feeling. But something you might not realise is that lenders aren’t like your friend down at the pub you’ve been ducking because you owe them a tenner. In fact, your creditors would much rather get even a few pennies from you than nothing at all. Making arrangements for payment plans with your creditors to help reduce and eventually eliminate your debt makes them happy — as long as you keep paying!
The Next Steps: Monitoring and Tidying Up
If you’ve taken the step to contact your creditors and come to terms with them about repaying them what they’re owed, congratulations: you’re off to a brilliant beginning. The good news is that doing so was, most likely, the difficult part. Now that you’ve accomplished that, you’re well on your way to clearing out old, bad debt. This is an important facet of credit repair, as you can’t establish better credit until you clear those black spots from your credit file once and for all.
That’s why, as you continue to repay your creditors, you should periodically check your credit history to ensure these creditors list you as repaying them satisfactorily. This is also the best time to tidy up your personal lending and cancel any old accounts you’re no longer using. Since lending institutions routinely review your credit utilisation ratio to make determinations on providing you credit, you might be seen as having ample ‘open’ lending already available. To avoid this, close out old credit cards and overdrafts that you no longer use.
The Long, Slow Road to Rebuilding Credit
Getting several important facets of your credit sorted, such as entering into repayment agreements with your lenders, shuttering old accounts you no longer use, and keeping a close eye on your credit histories going forward, you’ll eventually be ready to begin rebuilding your credit. When you’re in a financially stable position to begin this process, you can begin to take steps. One tip, which may leave you a bit surprised, is to register to vote if you haven’t already. Since lenders will look at the electoral roll to help make lending decisions, if your name isn’t present you have little chance at having your credit application approved.
Once you’ve done that — or if you’re already on the electoral rolls — an excellent option for rebuilding your credit is to apply for a “credit builder” card. These credit cards are specifically for individuals who, like you, are trying to establish a good credit history. Credit builder cards are, by necessity, often quite limited. Credit limits are typically low, often just a few hundred pounds, and the annual percentage rate (APR) these cards carry is much, much higher than a card issued to someone with good credit.
The best way to use these cards is to pay off any purchases you make as soon as possible. You want to avoid paying that high interest rate, so you’ll need to ensure that you have a flat balance at the end of every month. An excellent method for accomplishing this is to only make purchases on your credit builder card when you already have the resources, such as in your current account, to repay the purchase immediately. This prevents you from maintaining a costly balance while also adding to your credit file in a positive manner.
Speeding the Process Along
As we said above, credit repair is a marathon, not a sprint. Yet there is any number of reasons why you might need access to lending well before this process is finished. Financial emergencies come along on no one’s schedule, and if you’re in a spot of trouble that requires an infusion of resources, you might feel as if you’ve no recourse. Since you’re still in the process of rebuilding your credit, you simply don’t have a positive enough history for a lender to take a chance on you as you’re still considered too much of a financial risk.
You aren’t as up the creek as you might think, however. There are legitimate ways to secure credit even while your own credit rating is below average. That’s because there are several lenders in existence who specialise in providing “bad credit” loans. While these come with some very strict terms such as an astronomically high APR (often higher than a credit builder card), they’re often the only recourse if you’re in a bind. Yet even these bad credit loans can help you rebuild your credit, as making regular payments on these loans until they’re repaid reflects positively on your credit history just as repayments on a credit builder card do as well.
In fact, a bad credit loan can indeed help you rebuild your credit in ways similar to a credit builder card. The one difference is that you may not be able to avoid making high-interest payments if you borrow a significant sum in order to help you manage a financial emergency. If you find this taxing on your finances, it’s important to approach your lender and discuss the matter with them, as this can lead you to establish yet another repayment plan that will continue satisfying your lender without risking the type of late or missed payments that will leave more black spots on your credit file. Remember, the goal is to rebuild your credit, not dig yourself even deeper!
Other Ways to Access Credit If You Need It
If you do face a financial emergency, there are some other ways to access much-needed credit that don’t involve exposing yourself to as much risk as a bad credit loan. These methods are highly situational, however, as they often require the cooperation of a friend, family member, or another sympathetic third party. For example, lenders are often much less hesitant to extend cash to someone with a poor credit history if they have someone lined up to co-sign a loan. Other methods include being added to someone else’s credit account as an authorised user or opening a joint account with someone else.
It goes without saying, however, that this other person needs to have excellent credit for this method to work! Additionally, this method is not going to be available to everyone, as it requires that you have a strong relationship with someone willing to extend you help in this manner. If you do have the opportunity to do so, however, a word of advice: the only things harder to repair than your credit rating are your personal relationships. Think long and hard before accepting help in this manner. Accepting much-needed help in a financial emergency is one matter entirely, but the last thing you want to do is to sour a beloved friendship or family relationship over financial matters.
Now That You’ve Rebuilt Your Credit, It’s Time to Keep It That Way
The “final step” in credit repair isn’t as final as it might sound. That’s because maintaining your credit requires consistent effort — once you’ve eliminated all your bad debt and slowly clawed your way back up to having positive credit once more, you need to stay on top of your financials in order to stay that way. Many of the activities you engaged in during the early days of your credit repair endeavour will be repeated here, such as periodically reviewing your credit report for any errors or omissions. Yet your credit file will remain in its best shape if you maintain a “healthy” amount of debt.
Paying off all your old debt is a major milestone and one that should be celebrated! At the same time, you can’t just stop using credit cards altogether. That’s because you need to continue to show that you are demonstrating to credit monitoring agencies that you have good financial sense. The way to show this is to carry a modest balance. Remember your credit utilisation ratio? Using around 30 per cent of your total available credit (or even less) without making late payments or missing them altogether shows lenders you know what you’re doing when it comes to your finances. There are of course other ways to keep your file in tip-top condition covered in our article keeping your credit file sky high
Credit Repair in Review
That was quite a bit, wasn’t it? No worries — let’s review the whole process so you can more easily grasp the particulars. Here’s everything about credit repair at a glance:
Step One: Identify the Scope of the Problem
Before you begin repairing your credit in earnest, you’ll need to know what you’re working with. Get a credit report from all three agencies — Equifax, Experian, and Call Credit — to make sure your report is accurate and to identify which of your lenders are cross with you.
Step Two: Face the Music
Contact all your creditors that you’ve been lax in paying back properly and work out arrangements with them. Paying back even just a few pounds a month can have a positive impact on your credit file, so put on your adult trousers and make the call. Good news? This is likely the hardest part.
Step Three: Tidy Up, and Monitor, Your Finances
Keep a close eye on your credit file to ensure those repayments you’re making are being recorded accurately. Also, if you have old, unused credit cards or accounts, close them out completely to avoid skewing your credit history.
Step Four: Rebuild, Brick by Brick
Eliminating negative marks on your credit history is one thing; building a positive track record is another. Ensure you don’t miss any payments or make late payments on any active credit you have, and consider applying for a credit builder card if you can remain committed to good spending habits.
Step Five: Securing Lending in an Emergency
A sudden financial calamity can certainly throw a spanner in the works. In an emergency, consider taking out a bad credit loan, but be prepared for downsides like a high APR. Conversely, you can seek aid from a friend or family member if you have such a relationship in your life, but be careful you don’t regret it!
The Final Step: Maintain Your New Credit Rating
Finally, once you’ve ticked off all the above boxes, you’ll be tasked with keeping your new credit rating in good nick. Continue to monitor your credit report for any mistakes and commit to never missing a payment or making one late. At the same time, make sure you use a bit of your credit as well — but never more than you can handle.
The Last Word on Credit Repair
In the end, it doesn’t matter why you need credit repair; instead, being committed to rebuilding your credit history is what’s truly important. There’s any number of ways that you can end up with a lower-than-average credit report. Whether it’s having to rely on credit to meet ends while missing work due to illness or injury, getting yourself in too deep because of a lack of forethought, or any other reason, the goal is always going to be the same: getting back on your feet.
Remember: creditors don’t care what you do with your money – they just want to know if investing in you is a good risk or a bad one. There’s no shame in needing to repair your credit. Hold your head up high, follow the above steps as closely as you can, and, above all, don’t give up. With enough time and dedication, you can transform your credit file from a walking nightmare into a dream come true.