There is no set rule or definitive method when it comes to fixing bad credit. Each credit file will have its own positives and negatives, so you should take the time to identify the biggest issues on your report before creating a plan to fix your score. However, to help you get started, we have listed some of the most common approaches consumers take when tackling their poor credit history.
1. Check your credit report regularly
It is free and simple to check each of your credit files, so it is worth checking them regularly. By keeping a close eye on your credit history, you can gain a better understanding of what activities are boosting your score, as well as the behaviours that are lowering it. There are many different types of financial activity included on your report, so this should help you keep track of your financial position. Some of the most important activities to track are your payment history (such as bill payments), your total credit limit, your long-term history of credit use, the types of credit you use and the number of accounts you have. Your history will also include notes on the number of credit applications you have made and whether they have been approved or rejected.
2. Avoid missed payments
As your payment history is one of the major aspects of your credit score, it is crucial when fixing a bad score to keep on top of your bills. Missed and late payments can significantly impact your score and often incur a penalty fee that will increase your debt further. A handy way to keep on top of payments is to set up an automatic payment, such as a direct debit, that will leave your account at the right time each month. You will need to play the only role to ensure you have enough money in your account when the money is due to leave. Lenders like to see consistent, timely payments as it indicates reliability and a steady income; this can give your credit score a significant boost in a matter of months.
3. Reduce your debts
Although this is a long-term option, reducing debts is a simple, highly effective way to tackle bad credit. Another of the most important factors in your credit history, the level of credit you are currently using – or your credit utilisation rate – may suggest to lenders that you are living beyond your means or unable to support yourself financially. Most experts suggest that you should use no more than 30% of your credit limit at any one time, so focus on reducing those debts. Begin by pausing your spending where possible so you can lower your utilisation, then work on paying off your full credit card balance each month. The more you reduce your debts, the greater your chances of convincing new lenders to approve your applications.
4. Avoid having numerous credit accounts
While a low credit utilisation rate is important, it can be overridden by an excessive number of credit accounts. Having numerous accounts available to you can often result in lenders viewing you as high risk as you have the potential to access large sums and could take on significant debt very quickly. If you have several unused accounts open, begin by closing anything that is already empty. You can then slowly pay off the smaller debts until you can focus on just one or two credit accounts. This will also make your debts feel more manageable as you won’t be juggling many accounts or widespread debt.
5. Avoid new credit checks
When you apply for a new form of credit, you are likely to face a credit check or a ‘hard inquiry’. Not all forms of credit require a check, but those that do will leave a mark on your record, no matter whether you are rejected or approved. If your credit history shows you have made many applications in recent months, lenders may consider you a greater risk as you will appear desperate for extra cash. Even more concerning for lenders are multiple applications to different sources, which can suggest frequent rejection. Soft inquiries, such as checks made by you or by lenders hoping to give you pre-approval, will not affect your credit score.
4. Fix any mistakes in your credit report
Lenders can make mistakes that lead to a black mark on your credit report. Many borrowers who avoid checking their credit score miss these mistakes and are subsequently penalised unnecessarily for an error that can be fixed with ease. When checking your file, look for anything unfamiliar or an account that has been the subject of a dispute. If a lender has failed to update a file, or if you feel a lender’s report paints your financial activity in an unfair light, you can have this mistake fixed.