The 5 Steps to Repairing Your Bad Credit Rating

The 5 Steps to Repairing Your Bad Credit Rating

If you know (or discover) that a default is recorded on your credit file, you may be quite eager to repair your credit rating. Unsurprisingly, bankruptcy, a debt or some other payment default that is noted on your credit file is likely to negatively affect the likelihood of you being approved for a loan.

The good news is that steps can be taken in an attempt to repair your bad credit rating. In such a situation, which needs to be treated seriously and carefully, it is well worth seeking expert guidance. Similarly, when trying to secure a loan, it is wise to work with a loan specialist, such as DreamLoans, who have detailed knowledge about loan products and expertise in finding the right loan for you.

Pay off debts quickly to get rid of bad debt
photo credit: Morgan / Flickr

Steps to take to repairing and improving your credit rating:

1. Repay your debts

If possible, make contact with the organisation that provided you with credit with a view to negotiating repayment of the debt.

2. Say good bye to credit cards

It is recommended that you get rid of your credit cards, including store cards. Credit card debt represents the best way to achieve a bad credit rating. Many credit cards carry very high interest rates and unless stringent discipline is applied, they can repeatedly get their owners into a lot of financial trouble.

On a side note, please be aware that closing your credit cards can also affect your credit card negatively, read this for more information.

3. Consolidate your debts

Investigate whether it is possible for you to take on one consolidation loan by rolling all your debts into the one loan. If you are able to do this, it may be possible to more rapidly repay your debts.

4. Prioritise repayments

When consolidation of your debts is not possible, consider whether payment of secure debts, such as home or car loans is your first priority. For example, credit cards typically come with a comparatively high interest rate and so it can make a great deal of sense to prioritise repayment of such debts.

5. Redress errors with the help of an expert

Perhaps you believe that a debt default has been mistakenly recorded on your credit file. In this situation, it is sensible to seek professional advice and possible to have a mediator appointed to help you investigate and reach an outcome on any dispute.

Close credit card accounts to get rid of bad debt
photo credit: Bryan Brenneman / Flickr

Takeaway

Australian law says that when a debt has been repaid, the lender has a responsibility to update the listing recorded on your credit file and that this action should be taken as soon as possible. While this is the law and is an appealing reason to repay a debt, a default payment will remain on your credit file for five years – even though it has been repaid in full. Essentially, this is a component of your credit history.

Australian law says that when a debt has been repaid, the lender has a responsibility to update the listing recorded on your credit file and that this action should be taken as soon as possible. While this is the law and is an appealing reason to repay a debt, a default payment will remain on your credit file for five years – even though it has been repaid in full. Essentially, this is a component of your credit history. If this is problematic for you, note that there are Australian companies such as Positive Lending Solutions that specialize in loans with bad credit.

It is an unfortunate reality that some people first discover their identity has been stolen when their application for credit is refused as a result of failure to repay a loan of which they have absolutely no knowledge. This situation is alarming and unpleasant and to protect yourself against identity-theft scams, it is helpful to utilise strategies including: installation of anti-virus software on computers, using locks on the letterbox and shredding documents with personal and identifying information.

When you have a bad credit rating, your financial options are sometimes not completely eliminated but will almost certainly be vastly reduced. It is hardly a surprise that money lenders view consumers with bad credit as a risk.

Although it is not always easy or pleasant, the aforementioned steps can help you to fix your credit rating and be viewed more favourably when seeking credit in the future.

Ivan Widjaya

Ivan Widjaya is the Owner/Editor of Noobpreneur.com, as well as several other blogs. He is a business blogger, web publisher and content marketer for SMEs.