With discipline and patience, you can achieve a lot of things in life, even a problem of bad credit can be overcome. A major section of the people in South Africa is facing the heat of poor credit status. If you are also going through similar situation and wondering how to get rid of it, all you have to do is explore further and learn the tips that can be your key to unlock the problem of bad credit history.
When you have a bad credit rating then obtaining loan from a financial institution is no less than a challenge. This stands true even if you are considering applying for bad credit loans. After all, lenders want their money back, and they do not want to take risks. Given that credit scores are one of the first criteria banks and money lending institutions assess to find out whether an applicant for loan represents an acceptable risk. Some financial institutions do not consider past credit score and will not approve it if is below a particular benchmark. There are some lenders who consider other indicators when it comes to deciding whether to lend money to you, even if you have issues pertaining to low credit score.
Full credit report
If you think that a credit score can alone tell the story of your credit history then better give it a second thought. The full report shows a money-lender that credit products contribute to the score. In case of late payments, they will appear by month that would help them understand whether it is a one-time issues or a chronic problem. For instance, if you made late credit card payments four months in a row two years back when you were hospitalized, chances are that a bank or lending institution would consider those mitigating circumstances at the time of assessing your reliability, particularly if you have been making payments timely since.
The primary goal of the bank is to make sure that loan it is lending is recoverable. Pristine credit rating provides the lender with some comfort that the borrower will be able to pay back the borrowed money with the interest. When your credit rating is low, however, lending institutions might ask for additional assurance. Securing the loan with assets, or collateralizing it, gives lending institutions the ability to seize your assets if you do not make repayment of the borrowed amount. It is important to know that some loans are automatically collateralized.
For instance, your cash loan is secured by the vehicle you own, and your mortgage is secured by your home. In case you have equity in your home or other assets that you own clear and free, a lending institution might offer a secured loan, in case your credit rating is low.
Review recent credit score
The way you handle credit in the last one year is more important to lenders and banks than how you handled it three or four years back. If the damage to your credit rating is old, and you have a perfect and timely payment history in the last twelve months, lenders would look favourably to your loan application. Your credit rating will improve over time because it weighs recent history more heavily as compared to an old activity. Lenders might lend before the score rises with enough details regarding recent credit rating.
In recent years, this particular 12 month loan product is becoming common as the economy continues to struggle and more and more people are finding themselves in a situation of challenging credit score. Secured deposits are common with secured cards. Such cards allow the user to use credit card and build back credit rating. The card company needs that borrowers deposit with them, in most cases 100 percent of the credit limit that limits their risk. While this specific product does not allow you take new debt, it can help in re-establishing your credit rating in a quick way.
Pay all your debts
Yet another factor that plays an important role in determining your credit score is credit utilization. Your credit utilization refers to a measure of how much debt you have. It can be defined as a part of the available credit you are making use of. If you have a total availability of credit, say for $10,000, and you are using $5000 of the same, then your credit usage is 75 percent.
If you are one of those individuals who is making use of a great deal of available credit, it is important to remember that it can work against you. Create a plan that would help in making payments of debt faster. Honestly, spare out time and evaluate expenses you make, and try to cut them down. Use this money for saving and reducing this debt. If possible, try to get your credit utilization down to 30 percent or less than that. If you are able to reduce your debt, the credit utilization part of your score will improve, and thus help your overall credit rating.
Pay and clear all your bills timely
Paying bills within the stipulated time can prove to be a vital step in improving credit reporting. This also includes non-credit bill payments. Your late rent payments and missed utility payments can be reported to the credit bureau. Given that payment history is second to none, establishing a reliable pattern plays an important role in building your credit score. At the very best, you do not want to face reports indicating missing payments, or making late payments a habit. You can consider setting-up automatic withdrawal for avoiding missed payment in the future.
Good financial habits can do wonders
Well, as slated above, patience is the key to settle poor credit ratings. Equally important is to pay attention to your financial habits. It can take anything between three to four months for you to start seeing improvement in your otherwise bad credit rating. In some cases, based on how bad the situation is, it might also take much longer period, may be two to three years, to see improvement in your credit history. Consequently, it is important to bring change in your financial habits right away so that you can reduce the chances of poor credit rating in future.
Developing good financial habits by living within your means, setting aside funds for emergency needs, and saving for future is the key to have healthy finances. In this way, you would be less inclined to skipping or missing payments, and also you would have something to fall on your back in case you encounter financial problems. Make sure you keep with the good financial habits that you formed while rebuilding your credit rating, and it will become a lot easier to maintain new and improved credit history.
The bottom line
Having a poor credit rating can adversely affect your credit rating. Your chances of obtaining a loan, even payday loans for bad credit, or refinance your existing loans also become difficult. However, there are some lenders who consider your overall financial situation more holistically to know if you are at a reasonable credit risk. Keeping current credit situation under control is perhaps the first step when it comes to rebuilding your credit rating.