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Improving Your Credit Rating After Paying Off Your Debts.

September 21, 2017 by  
Filed under Money, Opinion, Weekly Columns

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(ThySistas.comPaying off your debt is a great feeling. After clearing your credit cards and loans, you can start to relax, save money and look forward to a better financial future. It’s a positive step forward, but even after repaying your debt, you might find that your credit rating is still on the low side. Improving your credit score is important for applying for mortgages or purchasing a car, but it might take you some time even after your debts are clear. Get some advice on how to improve your credit rating with these handy tips below.

Pay all of your bills on time

If you struggled to manage your debt, you might have found that you were often late in paying bills which not only meant having to pay additional charges, but it also had a negative effect on your credit. When working out your score, credit agencies will check for factors such as if you can pay your bills on their due date and how many missed payments you’ve had. Setting up automatic drafts is one way to ensure that your bills are paid on time, but make sure the money is in your account to pay them. If you can, move your due dates to the day your salary gets paid. This will make sure that your bills are always covered before you can spend the money elsewhere.

Cancel your high-interest credit

Clearing your debt probably took you a long time, as a result of high-interest payments. When your credit rating is low, you might only be offered credit that has a high-interest attached to it. Consider making application to companies that specialize in offering credit to those with poor ratings like that can help you to build up your credit rating sensibly. Should you need to take out a loan or credit card, this should be the way forward instead of falling back on those old interest rates that could land you in trouble again.

If there are some credit accounts that you know that you will no longer need, such as a loan or a store card – cancel them. There’s no point keeping credit accounts open that you will no longer use. This way, you will reduce your overall available credit and be a more preferable candidate should you choose to make credit applications in the future. Make a list of all your accounts and cross of the ones you no longer need.

Use some credit, wisely

You’d think that paying back your credit would be the way to ensure that your credit rating climbs back up to a good place. However, you might need to have some credit to rebuild your score. Lenders want to see that you’re using credit responsibly. This means that you should aim to spend a bit of credit, making sure that you pay it back in full each month. Lenders want to see that you have some credit utilization (under 30% of your available credit is a good marker), but not too much. Having no credit utilization at all means that you become a risk to lenders – you could suddenly decide to use up all of your available credit in one go and fail to pay your big commitments such as your mortgage, rent or car payments. There are times when using your credit card is better than using your debit card, so stick to these and make sure that you repay your balances at the end of the month.

Some ideas for using your credit wisely include using your credit card for gas or groceries – things that you would pay for anyway each month that you know you can afford to pay back. Don’t think of this as borrowing; you’re simply making your credit card the middleman that you should then pay back at the end of the month. If it helps you, give yourself a budget for your credit card and set up a pre-authorization payment to make sure that the amount is covered each month. If you do need to spend a little more, aim to pay the majority back and up your payment for the following month.

Check your credit report for errors

When you’re trying to rebuild your credit score, you should sign up to a credit report agency that can help you get a realistic picture of your finances. Analyze your report carefully, as there might be errors present that you weren’t aware of. There are ways to dispute errors on your credit report that involve putting your dispute in writing to put your case forward. You’ll also need to gather any evidence that you have such as bill payments and correspondence that you have received to help you clear these inaccuracies. Your credit report will also highlight any known financial associations, such as an ex-partner or a roommate that you may have had a joint account with. Make sure that your credit report is in good order to make sure that it accurately reflects your circumstances.

Don’t start making a tonne of credit applications

Applying for credit can also affect your score in a negative way. Making too many credit applications will make your credit rating drop as it will your credit accounts’ average age – something which lenders will look at. If you know you’re going to be needing a credit check in the next couple of months, hold off from making any credit applications. If you visit and similar credit report agencies, they will have tools that can tell you your chances of being accepted for credit before you apply. That way you can make sensible decisions about what credit to apply for and stop yourself from making multiple applications when by getting rejected.

Don’t let a poor credit rating get you down. You should celebrate the fact that you’ve managed to clear your debts, knowing that your credit score is something that can be built up much easier over time. While you look to rebuild your credit rating, set yourself a budget to help build savings and to help you develop better spending habits. Your new outlook on spending will be a great thing for your finances and stop you getting into trouble again in the future.

Staff Writer; Kim Adams

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