We all start out with the best of intentions. We learn how to use credit cards wisely. We try to not borrow more than we earn. We work hard to make our monthly payments on time. Everything is going swimmingly and then…something happens. It might be one big thing or a series of little things that creates a snowball effect. However you got here, you’re staring at a mountain of debt and a completely trashed credit rating. You need to get back on track but you’re not sure what to do.
Here is what you do.
1. First Make Sure Your Credit Report is Accurate
Identity theft is incredibly common now, no matter where in the world you might be living. You need to make sure that someone hasn’t been having a bunch of expensive fun in your name. It is also worth noting that the CRA does make mistakes. In the United States, something like 70% of Americans have reported finding mistakes on their credit reports. Get a copy of your report from the CRA and make sure it is accurate. Make sure that your information is accurate and remove anything that is no longer relevant (for example, if you have gotten divorced, you need to remove the financial connection on your credit report).
2. Don’t Apply for Anything for a While
If you’re staring at a mountain of debt and a dozen different monthly payments, you might be tempted to try to find a loan or credit card that you can use to pay everything off full stop. Resist this urge, especially if you know that your chances of approval are small. Applying for a bunch of new lines of credit tells each new potential lender that you are in financial trouble and, therefore, a risk.
3. Register to Vote!
Sorry, this one is only for us UK-bound folks. Registering to vote can boost your credit score! If you aren’t sure whether or not you’re already on the electoral roll, you can find out by contacting the Electoral Commission.
4. Look and Ask for Help
If you are not in “googling” mode yet, get there. Almost any problem can begin it’s path towards being solved with good online research. Go to sources, like Lexington Law, that focus on providing resources and services in place to help you fix your credit.
You also have the option of asking for governmental assistance in settling our debts. You can choose to work with a governmentally sanctioned debt management company (they work sort of like the American credit repair agencies do) or, if you’re facing legal action, you can ask for an Administrative Order. Gov.Uk has a great overview of the “official” options that are available to you.
Fixing your credit isn’t just about paying off past debts, though that is quite a large part of the equation. If you really want a good credit rating, though, you have to work to rebuild your standing.
One of the best ways to do this is by opening a secured line of credit with your bank. Secured credit lines do not require you to have a great credit rating or history because you are putting up property or cash as collateral. Chances are, your parents opened a secured line of credit for you when you were younger in an attempt to help you learn how to use credit responsibly. Now you can do the same thing for yourself, to relearn good habits (and build your rating).
Remember: in most western countries, credit is a living thing—it changes as you change. That means that even if your credit is terrible right now, you can fix it!