How To Handle A Bad Credit Rating

24 Oct 12 / Posted by: Fran Sidoti

So your credit situation isn’t optimum. Maybe you heaped more than you could handle on your credit card when you first got it, and haven’t been able to pay it back. Maybe you took out a loan, without having the income to manage it. Whatever the reason, you’re not alone. Many people, including yours truly, struggle at some point with credit issues and a bad credit rating. Here are ten ways to start getting back on top, and fast.

Know Where You Are

The easiest way to find out whether your credit situation needs work is to check your credit report. Here in Australia, these can be obtained from Vena or Dun & Bradstreet. It’s a simple matter of proving your identity and filling out a couple of forms.

Check Your Credit

Once you know the extent of your rating, you’re more equipped to take on your remaining debt. Write out all of your debts and tally the total. It can be a confronting experience, but you’ll be better off once you know. We have previously written about how to check your credit history here.

Consolidate

You may not usually want to put all of your eggs in one basket but- when it comes to debt- it can be the most cost-effective way of regaining control of your liabilities. Find a way to consolidate the debts, either with 0% balance transfers onto the one credit card or using a personal loan. A loan is optimum as it allows you a steady rate of repayment that you can budget for.

Increase Your Margin

Now that those initial steps have been taken- you know your credit rating, liabilities and have consolidated them into one place- you need to increase the space between expense and income. Chances are, if you’re leaning on credit, your expenses exceed your income. It’s imperative to reverse that trend. Cut down on your costs until you have a monthly buffer and money to start putting towards debt repayments.

Automatic Deductions

Now that you have a margin, set up automatic deductions to repay your debt on a weekly basis. Debt is your priority, so these deductions shouldn’t be touched.

One Year Budget

Fantastic, the track is well and truly set upon. Now you need to project for the coming year. What big expenses might be coming your way? As well as automatic deductions, you need to save for big expenses. Car rego, insurance premiums, Christmas. It’s often these events that derail financial plans and cause credit havoc. You might not be able to predict them all, but you’ll be well ahead if you can save for the annual expenses.

Limited Credit Usage

To improve a credit score, you need to learn to use credit sensibly. This means being able to prove to lenders that your behaviours have changed. The most effective way is to demonstrate limited and sensible credit usage. Use your credit card once a month, and pay it off immediately. This will start to redress your credit rating.

Talk To A Financial Expert

Now that you’re on the path, talk to a financial expert about your next steps. There are some loans available to those with bad credit, although careful research is essential as there are enough people willing to capitalise on people’s financial difficulties. Bad credit needn’t mean you’re unable to improve your financial situation for the rest of the decade. Check out the options available to you.

Have A Buddy

Like any behavioural change, bad credit is no easy fix. Following these steps will get you on the right track, but it’s crucial to have someone to help you out should you need it. Even if you only tell one person, have someone who can check with you periodically, who you can call if you’re feeling a bit overwhelmed. Chances are, the more people you discuss it with, the more you’ll realise how many other people are going through the same thing.

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