8 Steps To Recover From A Bad Credit Score

If you have a low credit score you may be already aware of how it can affect your financial life. Applying for a very bad credit score car finance deal may see you get declined or you may be struggling to get a mortgage or credit card, whatever impact a bad credit score is having on your life, it can be disheartening! Rebuilding a low credit score can take time and it’s all about creating new financial habits, but once you do the benefits can be worthwhile. If you’re in a position where your credit is low, this guide has been created with you in mind! We look at the top ways in which you can help to improve a low credit score and the steps you can take to better your financial life.

1. Check your credit file.

You may already know where you fall on the credit scale, but your credit report can be really insightful. There are three main credit reference agencies in the UK which are Experian, Equifax, and TransUnion. Each has their own scoring criteria so it can be worth checking with each to see how they differ. From there, you can gain expert advice and information on which factors are holding your credit back and how to improve.

2. Fix any credit report mistakes.

Many consumers aren’t aware of how misinformation listed on your credit report can be harming your credit score. Information that isn’t accurate or up to date makes it harder for lenders to verify who you say you are and even something as simple as a spelling mistake in your address can have a negative impact on your score. When you apply for finance or credit, it’s also important the information you provide on your application matches your credit report or lenders may consider it a fraudulent application in your name. If you need to make any changes to your report, you can contact any of the credit reference agencies.

3. Remove any negative financial links.

When you check your credit report you may also notice you could be financially linked with someone else. This happens when you take out finance with someone such as a joint car finance deal or a mortgage together. If you took out finance with someone who has bad credit and the agreement is no longer active, it can be a good idea to disassociate them from your credit file. Their low score could be negatively impacting yours too and you can contact the credit reference agency who provided your credit report to remove them from your file.

4. Reduce existing debt.

In order to better your credit, you need to assess how much of your available credit you are using. Having high levels of credit card debt can negatively impact your credit score and makes it harder to get finance in the future as lenders think you can’t handle anymore. Before you think about getting more credit, you should first try to reduce as much of your debt as you can. Not only will this improve your credit, but it also makes your finance more manageable.

5. Pay your current bills on time and in full.

One of the best ways to improve your credit score is to meet all your current repayments on time and in full. When you sign up for a credit agreement, you promise to make payments on time and stick to the schedule. Failing to do so has a massive effect on your credit and seriously impacts your ability to borrow in the future. To start creating new financial habits, you need to pay your current bills on time and in full. If you’re struggling with any of your loans, you should contact the lender first to see how they can help instead of missing the payment all together.

6. Stop applying for credit.

When you’re trying to better your credit it can be a good idea to not take on any more credit at this time. More credit adds to how much you owe back to lenders and increases the amount of debt you have. Applying for multiple loans in a short space of time can also have a negative impact on your credit score so it’s best to avoid any new credit and instead focus on fixing the debt you currently owe.

7. Keep your credit usage low.

Having multiple credit accounts isn’t necessarily a bad thing and showing a good mix of keeping on top of different types of credit can be beneficial to your credit score. However, the credit utilization ratio is used by lenders to assess how much of your available credit you’re using. It is recommended you only use around 50% of your credit limit and if you really want to maximize your credit, you should only use 30% of your limit. For example, if the limit on a credit card is £1000, you should only spend around £300 at once and work to pay it off as quickly as possible.

8. nBuild new credit habits.

Many consumers take credit for granted and it can be tempting to get carried away with what you can get on credit or finance. However, you should only ever apply for finance when you know you can afford to pay back and be able to meet each and every payment over the full term. Creating new credit habits is all about keeping on top of your payments and only using credit little and often.