An individual who has missed or made late payments on a past or existing credit agreement during the last 7 years (10 years for chapter 7 bankruptcy) will now face a low credit score. This is because lenders report to credit reference agencies (Experian, Equifax and TransUnion) each month. Whilst making a series of timely payments will improve a score, not doing so will have the reverse effect. The severity of the credit transgression determines how much a score falls by. Bankruptcy and foreclosure will cause a score to fall the most, whilst a missed payment won't be nearly as detrimental.
Improving a Low Credit Score
A poor credit rating is not a terminal condition and can be gradually improved over a period of time. Contrary to what some credit repair companies claim, credit report repair is not easy or quick. The most effective way to increase a credit rating is by making a series of punctual repayments on current credit agreements (credit cards, car loans and mortgages).
How Credit Repair Cards Work
A poor credit rating credit card is an excellent way to recover from a low credit score. As already alluded to above, punctual repayment helps with credit report repair. It can also help those (especially students) who don't have any credit history - not having a history of repayments is almost as bad as having adverse credit. However, it is important to clear the balance in-full each month due to the APR.
Correct Credit Report Errors
The fastest way to recover from a low credit score is by correcting the errors on a credit report. A surprising number of reports contain erroneous data that can lead to a loan application being rejected. Issues can range from incorrect credit searches to bankruptcy being recorded for the wrong individual. These can be rectified by six months.
Avoid Unnecessary Credit Searches
Each application for credit will display on a report for a period of 12 months. It is important that the individual doesn't make too many applications for finance as it signifies to a lender that the customer is desperate and could set off alarm bells. Perform proper research and only apply for the right loans.
An Improved Income to Debt Ratio
Although the individual's repayment history accounts for up to 40% of a FICO score, 35% is determined by the level of debt relative to income. Never max out a credit card. Try to pay off some of the money owed and spread the balance over several cards. This can help to improve a low credit score in about three to six months.
Credit Report Repair Methods
Recovering from a low credit score will not happen quickly, but it can take place over time. The first step to recovery is eliminating credit report errors and avoiding unnecessary credit searches. However, the key to rebuilding credit is making repayments on time each month. Those who lack an existing credit agreement may wish to consider a poor credit rating credit card as they report to credit reference agencies at month end.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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