The foreclosure causes your credit score to plummet by up to 200 points and continues to appear on your credit file for up to seven years. In the first few years, your chances of qualifying for lower interest rates are negligible, but over time, the damaging impact of foreclosure will begin to fade away. A credit score is a crucial factor in determining your affordability in that it reflects your past payment behaviour. Defaults in your credit history will call your credibility into question, and therefore, most of the lenders will be disinclined to approbate your application.
What has happened has happened. The clock cannot be turned back, but it does not mean no amount of effort will be undertaken to improve your credit score. Responsible financial comportment is the passport to increase your chances of borrowing money at affordable interest rates down the line.
Ways to do up your credit score
First and foremost, there is no magic wand to improve your credit score overnight. Multitude factors such as the amount you owe, the type of debt you have, and credit card limit utilisation play a paramount role in calculating a three-digit number that speaks volumes about your financial commitment. You will have to focus on all factors to be perceived as a responsible borrower.
- Review your credit report
Not until you know where you stand will you be able to boost your credit score? Self-assessment of your credit file does not hurt your credit score, no matter how frequently you check it. However, you will have to pay a nominal fee because a free copy of your credit report is available from all credit reference agencies only once a year. Look for reporting errors, unidentified accounts and unpaid balances.
Your credit score improvement strategy dominantly hinges on the cause of a dip in your credit score. The strategy for two different causes cannot be the same. Lenders are responsible for reporting crucial details such as on-time payments, late payments and defaults to credit reference agencies, with a high possibility of errors. Sometimes, this happens because of identity theft. If any unidentified account or errors come to your notice, you should immediately dispute the error. The correction will take at least a month to be visible on your credit file.
Likewise, upon noticing unpaid balances, you should come up with a repayment strategy to diminish the amount of money owed. Falling behind on payments is a prominent reason for having an impaired credit score. After taking stock of your credit file, you will be able to set a functional strategy.
- Focus on timely payments
Payment history accounts for 35% of your credit score, so do not downplay the far-reaching impact of carrying balances every month. In case of multiple debts, prioritise and discharge those with high interest rates. Credit cards and a loan from a direct lender for bad credit in the UK carry exorbitant interest rates. You should repay them as soon as possible. The longer you take time to settle your dues, the longer time you will take to settle your debt.
Do not forget to concentrate on your credit card balance. They are as exorbitant as payday loans, as the interest is charged by the day. The sooner you repay the balance; the less interest you will pay. Even if you are juggling with multiple debt payments, do not ignore credit card payments. Repaying the minimum payment will take you nowhere because carrying the balance will keep accruing interest. Your credit card debt will continue to accumulate, and thus, it will be more challenging to settle the dues.
- Borrow money responsibly
You might come across a situation when your emergency cushion has fallen short of cash. At the time of taking out a loan, make sure you will not struggle to discharge the debt. Use online loan calculators to know the estimated cost of the debt. Avoid borrowing more than you need. As small loans are convenient, you might be tempted to borrow more than you need.
Consider credit builder loans to improve your credit score. These loans are paid off within a period of six months. While you may have taken out small emergency loans and discharged them on time, it cannot help improve your credit score. This is because lenders want to see your commitment, which cannot be observed unless the repayments are made over a period of time.
Foreclosure might push your credit score in a very poor credit range, so there are the slightest possibilities that you will get approval. In this case, try to apply for guarantor loans from direct lenders. As a guarantor indemnifies against any default that you make, lenders might lend you money at lower interest rates. However, make sure you do not struggle to pay back the debt because a missed payment will hurt the credit score of the guarantor, too. Your relationship with the guarantor will also be strained.
- Keep a credit utilisation ratio low
An ideal credit utilisation should not be more than 30%. Use your credit card to make small purchases and make sure no further transactions are made through a credit card unless the balance is paid in fell one swoop. When you make multiple purchases within the same month, you often lose track of your spending and end up with credit card debt.
If you cannot clear the dues in full on time, you should avoid using it to make any purchase. Use cash or debit cards to know how much you are spending every month. Your credit card balance should be cleared before your provider informs credit reference agencies of your balance.
The final word
It could be a bit challenging to ameliorate your credit score as it depends on how bad it is, but it is not implausible. Continue to pay off your debts and credit card balances on time, keep the credit utilisation ratio low, and periodically check your credit report. Be patient, as you will not notice any improvement within a short time period.
