Money

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A bad credit score can ruin your plans for the future

A bad credit score can ruin your plans for the future

Bad credit ratings can destroy dreams. You may want to buy a house, a new car, or borrow a little money to take your family on that dream holiday in Bali. But then your credit history comes up, and the application is rejected. It’s the stuff of nightmares.

However, all is not lost. There are ways to deal with a bad credit rating and even one way to get your hands on some money while you’re waiting for your score to improve. Here’s how.

Play the waiting game

Okay, so this isn’t what you want to hear, but it’s useful information nonetheless. A bad credit rating will stay on your credit report for about seven years. Of course, this is an approximate figure as it really depends on how many defaults you had or how much you may have borrowed in the past.

Generally speaking though, once you keep on top of your payments and make no applications for credit during that seven-year period, your credit rating will be back to normal.

Don’t apply for new credit

Every time you apply for credit, this goes onto your credit report. Lenders who see a pattern of repeated attempts to borrow will feel that you don’t have your finances in order and will likely reject any application you make. If you want to repair your rating, stop asking for more money.

Pay off outstanding debts

Any outstanding debts are a red flag to a borrower as they feel this will affect your ability to repay your loan. Try your best to pay off these outstanding debts first before asking for any new credit. And yes, that includes your credit card.

Keep your debt-to-credit ratio low

While your overall debt is important, your debt-to-credit ratio is just as important. For example, $500 on a credit card with a $1000 limit is considered worse than the same debt on a card with a $2000 limit. On the first card, your ratio is 50% while on the second card it’s only 25%. So don’t max out that card.

Keep using your credit card

This may sound a little odd, but continued use of your credit card is actually a good thing. If you use your card to pay for items regularly and pay your bills on time (not the minimum), then you are proving to a potential lender that you can manage a credit account responsibly. So if you have a credit card that is in good health, keep it that way and use it regularly.

In case of emergencies

There are times when you have no choice but to borrow. It could be for essential repairs to your car or home or another unexpected bill. While your high street bank will be unlikely to help, a short-term loan provider will take a different view. Now, we did mention earlier that repeated applications for credit are a bad thing but in all likelihood, this will be an approved application, and when repaid in full, it will reflect well on your credit report. Pay it off on time, and this will do your credit rating no harm at all.

As you can see, a poor credit rating while terribly inconvenient isn’t the end of the world. With a little common sense, patience, and will power, you can get your rating back on track in no time at all. However, you have to remember; one late payment can affect your report. So always pay your bills on time, especially those that are on credit.

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