A healthier financial life should be one of your resolutions for 2017. Bad credit gets you into more trouble than you think and limits your access to the most advantageous financial products. That’s why if you’re now in deep water, especially after all the holiday ruckus, it’s time to get yourself together and pull the strings back for a smart financial year start.
There are ways to build back damaged credit. In this article, we discuss these common problems with completely doable fixes:
Problem: I have thin credit history which does not reflect well on my record
Having thin credit history is better than having a bad credit history. It’s true. If you have not yet established a substantial timeline, this may not reflect well on your report, but that does not mean you have zero chances of getting the financing you need, for example.
Even if you have thin, or no credit history at all, lenders get around this dilemma by pulling accounts that are not normally reported to credit bureaus, through credit reporting agencies. These accounts may include your utility bills or your rental payments. If it has been shown that you had been a responsible payor for these minor debts – that is, you paid on time, for a significant period without delinquencies or delay, you may have a good shot at being approved for a loan product.
Solution: Build your credit
Take note: even if you can get around this dilemma, having bad credit because of non-existent or thin history can still pose problems for you in the future. The process involved in pulling non-traditional reports may also be too complicated for some lenders and therefore decrease your chances of getting a loan approval. Thus, it is wise to slowly build it if you want to take advantage of the financial ease it offers.
One way to build credit is to get a credit card with a low limit. Use this for minor purchases which could build up over time. Another way is to be listed as an authorized user of a credit card owned by family, relatives, or even friends who have excellent credit. Their account adds to your history and could be really good for building your own credit. You don’t even have to use it.
Problem: My credit is tainted because of past delinquencies
It happens. Something unexpected comes that disrupts your budget and causes you to miss a payment on your loan dues. Whether it is a job loss, a medical emergency, or a necessary expense, this disruption could damage your credit record and affect your future access to other financing products. Delinquency is a big thing for lenders. It’s a red flag that declares your inability to hold up to your responsibility as a borrower. However, if this happened a long time ago, and you have made on-time payments since then, the delinquency may not pose much problem. The older the entry is in your timeline, the lesser the weight it carries and thus, the lower its impact on your score.
Solution: Continue making on-time payments
If you are applying for financing, prepare by making sure you made full, on-time payments for the past 12 months. This will lessen the effect of the bad entry in your history. You can also follow the advice stated above, which is to ask help from friends or family to piggyback on their good credit standing by being an authorized user of one of their credit accounts.
Problem: I have high utilization ratio
Your utilization ratio speaks about how you use your credit, whether you only use it for minimal expenses or you overspend. If you use your credit cards often, chances are you have a high utilization ratio and this will not be taken lightly by lenders.
Solution: Consolidate, ask help
One solution offered by experts for individuals stuck in this dilemma is to get a personal loan or to tap into your home’s equity through HELOC, consolidate, and clear those high-interest credit cards. Discipline yourself and try not to spend much. If you can’t get rid of the habit easily, ask help from a financial advisor and inquire about a debt management plan. This will help you budget, considering all the debts you carry, and how you can get out of it.
Managing your credit is a lot about self-discipline. Although there may be circumstances that are beyond your control, the least you can do is manage well those which you can.
Ask our professionals today about your financing concerns.