How to Fix Bad Credit – Our Guide

February 13, 2020

A bad credit rating reduces your chance of getting approved for a housing loan, credit card, or personal loan. If you have entered into a debt agreement, applied for a credit card, or defaulted on loan payments, all this data goes into your credit file and can significantly affect your credit rating for years to come.

Achieving a better credit score can mean lower interest rates, qualifying on a mortgage, and overall better terms on credit cards and loans. Bad credit happens when a person goes through a financial crisis, triggering multiple bad circumstances, such as having a vehicle repossessed, filing for bankruptcy, medical expenses, or charging up high balances on credit cards. 

All these could happen in just a short period of time. Some financial crisis may happen only once, such as real estate foreclosure or tax lien, but will make lenders extra cautious of working with you.

There are certain things you can do to fix your bad credit rating. The first thing you need to do is to order a comprehensive copy of your report from major credit bureaus, compare, and review to spot any incorrect information. The majority of the reports provided would include an explanation of various factors that are negatively affecting your rating. This will allow you to focus on them and think of ways on how to fix to improve your rating.

1. Check for any errors or incorrect information

Once you have the report, it is imperative that you review it thoroughly for any errors. Generally speaking, fixing errors in your report is the easiest thing to do. Most of these errors are significant and could easily hurt your credit. About 25 per cent of credit reports contain inaccurate information that is serious enough to result in a denial of a loan application. Look for errors, such as: 

  • Incorrect public records, like foreclosures and bankruptcies
  • Missing accounts that should be included in your report
  • Incorrect personal information, such as a wrong address and misspelt name
  • Duplicate accounts
  • Incorrect inquiries

Don’t overlook these mistakes, no matter how small you think they are. Verify if the errors appear on all of your reports. Once spotted, file a credit report dispute letter to correct the errors.

2. Minimize your spending habits

Once you have dealt with fixing inaccurate information on your report, it is about time to make sure that you take control of your expenses—spend only what you can afford. You can start by reviewing your tax returns and determine how much money you take home yearly. 

Deduct all the regular monthly expenses, like mortgage, car payments, health and car insurance, etc., from your monthly income. Then, estimate your monthly spending habits, such as groceries, entertainment, or gas. 

Based on your income, create a limit of what you can spend for each of those expenses. To help you save, instead of having a budget of $400 for your groceries, you can lower it down to $300 by some adjustments, which include resisting the urge to buy stuff on impulse.

3. Pay all past due or late accounts

Your payment history also greatly impacts your credit. If you want a better credit rating, start by paying all your bills on-time. Once payment is beyond 30 days overdue, lenders and creditors will immediately report you to the credit bureaus, ultimately impacting your creditworthiness and rating. If you are behind any of your bills, catch up as soon as you can. Simply put, you will never see an improvement in your rating until you pay your bills consistently every time.

Taking a proactive approach in managing your credit rating will create a much better result than just sitting back and simply waiting for the score to improve. Ideally, there are only three basic steps you can do to fix your bad credit rating:

  • Avoid applying for credit
  • Pay all your bills on-time and consistently
  • Pay down debts, especially credit card debts

Having bad credit does not mean the end of your financial freedom—it doesn’t need to last forever. Follow the tips above, and you can improve your credit score and your chances of getting a loan.

If you’re looking for bad credit loans in South Africa, get in touch with us today! We’re happy to help.