Having a good credit history is sometimes touted as the hallmark of being a ‘responsible adult’. However sometimes the cards are stacked against you and you can find yourself with a bad credit rating and seemingly no way to get back out of it.
How did I get a bad credit rating?
Every missed payment counts against your credit rating. Phone bills, credit cards and mortgages, if you miss a payment it will be recorded on your credit score. Most providers will give you 60 days to remedy the payments, but once those marks are on your credit report they stay there for five to seven years.
You can also get marked down for having too many pulls against your record – like opening too many credit cards or shopping around for a mortgage.
What does a bad credit rating mean?
If you have a poor credit rating, it is most likely going to affect your borrowing capacity. Lenders may not be willing to lend you money if you have a poor record as they’ll be worried you won’t pay it back. On the other hand they may put extra restrictions on the loan, such as a smaller amount or higher interest rate – these are known as sub-prime loans.
Other times your credit history may be checked include applying for rental properties, or sometimes applying for a job. While the outcomes of these checks are less rigid, you may find yourself passed over as a tenant if another, more desirable tenant has also applied.
How can I improve my credit rating if no one will lend me credit?
There are a few tricks you can use to improve your credit rating over the short and long term. All of the marks on your credit report will eventually drop off, generally after five to seven years. In order to bring your credit rating back up, start by developing good financial habits, develop a budget, and pay down your existing debts.
Unfortunately, changing your ways will take time to be reflected on your credit report. Consistently paying your bills on time will bring your report up, but it will be slow going. To get a quick turn around on your score you need an active approach, such as taking out a secured credit card.
A secured credit card is treated just like a regular credit card with a few special differences. Firstly, you can obtain a secured credit card while you have a poor credit rating. In most cases you will need to put down a deposit equal to the limit on the credit card, you often pay higher interest rates, and while rarely find a secured card linked to a rewards program.
However, lenders will be willing to offer you a secured card when you have poor credit, because you are putting up the deposit so they are covered. This credit card is then reported just like a regular card, so every time you make a successful monthly payment you receive a positive mark on your credit report.
Pay off your card in full every month, while also bringing the rest of your finances under control and you will quickly climb the credit rating ladder.