Budget setbacks can happen anytime, from unplanned bills, expensive house repairs, to the loss of a job. These financial situations may lead to bad credit or financial instability.
Having a bad credit score may affect your loan, mortgage, or job application. A poor credit score is considered a sign of lack of discipline in credit behaviour, thus reducing your chances of availing yourself of loans.
You may end up paying higher interest for the loans sanctioned. The good news is that there are firms offering personal loans for bad credit. However, ensure you conduct extensive research to identify a reputable lender in your locality.
Nevertheless, it’s important to identify ways you can bounce back from a bad credit score. It’d be best to understand that rebuilding your credit is more difficult than starting from scratch.
You’re trying to show credit card issuers, lenders, and employers that you’ll be able to have better financial management in the future despite your current situation. But before you start the process of rebuilding your credit score, it’s vital to ensure you understand your current score.
Below are some tips you might consider using to rebuild your credit score. They include:
1. Taking stock of your debt
Taking stock of your debt will make it easier to know how much you owe and how much interest it’s costing you. You can easily decide where you should start focusing your efforts and the best strategy to repay your debt. This includes:
Debt Snowball – This debt repayment strategy allows you to pay the smallest to the largest debt gradually. Thus, you’ll realize progress earlier on.
Debt Consolidation – This strategy allows you to roll all your debts into one loan with a single interest rate. Thus, it’ll be easier to pay and keep track of your various debt.
Debt Avalanche – In this method, you’ll prioritize paying off debt with the highest interest rate. It’s an ideal route to save time and interest over your debt payoff journey.
Conduct extensive research to identify the best strategy to repay your debts. Paying off your debt will influence your credit score, making it easier for you to secure a low-interest loan or a mortgage.
2. Refrain from submitting multiple credit applications
Every time you apply for a loan or a credit card, the issuer will assess your credit-worthiness by using your credit report. Such lender-initiated credit reports may pull down your credit score by some points.
Thus, if you apply from several lenders, especially within a short time, this may have a negative impact on your credit score.
To avoid this, visit various online marketplaces to compare loans based on your credit score instead of directly applying for a loan with multiple lenders. Although these marketplaces may fetch your report from a credit bureau, this won’t affect your credit score as it’s considered soft inquiries.
3. Set Up Automatic Payments
Several factors may affect your credit score. They include late payments, credit usage, and more. Thus, on-time payments will play a huge role in improving your credit history. Automating your payment will ensure you don’t miss any payments.
Features such as autopay are typically available for most bills and allow you to set a date each month to automatically use your bank or credit account funds to pay bills. Thus, you’ll avoid late payments, helping to rebuild your credit score.
4. Develop a financial cushion
Developing a financial cushion will ensure you have a reliable way to pay for unplanned expenses if your saving fund isn’t enough. Thus, your rainy-day fund should include backup options beyond a savings account.
Including a backup funding option in your emergency plan will make it easier to access sufficient funds to cater to unplanned bills.
If your fund is low, it’s important to improve your saving rate, to ensure you have a constant flow of funds to cover emergencies.
5. Evaluate your budget
This is another tip you may use to tackle your debt. Ensure you conduct a thorough audit to understand where your money is currently going. This will make it easier to evaluate whether your current budget aligns with your financial goals.
For instance, if your goal is to pay off debt, but you find yourself using money on other things such as shopping, then it’s time to re-evaluate your budget. This will help you avoid debt build-up, which could affect your credit score.
There are several ways you can use to improve your budget. For instance, 50-30-20 budgeting is a strategy that helps you split your income into must-haves, wants, and savings. You can also use several budgeting apps to re-evaluate your spending, improving your credit score.
Bottom line
As discussed above, bad credit may affect your loan or mortgage application. You may end up paying higher interest, affecting your saving margin. For this reason, it’s important to identify ways to boost your credit score.
Speak to Jon about ways to improve your credit score on 0410 699969.