How to Repair a Bad Credit Rating

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A bad credit rating can cost you a great deal. Lenders will deny you financing, or worse, charge you sky-high interest rates on loans. You may have to pay deposits in order to secure a mobile phone or have utilities turned on, and face unfavorable rates and terms on new loan agreements. Fortunately, you can take steps to repair your bad credit rating and get your credit file back on track.

The following tips will help you improve your bad credit rating once and for all.

Review your entire credit file. The first step in improving your credit score is to evaluate the entire file to determine what is damaging your credit report. Identify problem accounts for further examination.

Report inaccuracies to the credit bureau. Highlight any inaccurate, incorrect, or erroneous information. you must immediately contact the credit provider (lender) to inform them of the discrepancy. Give the lender information about the account, including the reference number, so that they can conduct an investigation of the matter. If the lender finds that the account was incorrectly reported as yours or as overdue, they are then required to contact the credit agency so that the incorrect information can be erased from your credit report. You should also send a copy of the dispute to the credit agency so that the account in question can be marked as "disputed" until the issue is resolved.

Pay off overdue accounts. Once the payment has been made, the credit file will be updated to reflect that the payment has been made, although the delinquency will still show.

Negotiate payment on defaulted loans. Some lenders may be willing to erase the black marks on your credit report in exchange for repayment in full. Always ask the lender to do this before paying off the debt. If they agree, get a statement in writing that you can present as evidence to the credit bureaus in the event the lender doesn't follow through.

Cut up - but do not close credit accounts. Closing lines of credit can actually damage your credit rating because it limits your amount of available credit. This is not to say you should continue charging debt to your cards. Instead, cut the cards up to limit temptation. The credit card companies may also send you offers of lower interest rates or better perks to encourage you to begin spending again.

Pay all financial obligations on time - every month. Making late payments is one of the worst things you can do to your credit file. Late payments result in late fees, reduce your credit rating, and affect your bargaining power with lenders.

Work with lenders when times are tough. If you are unable to make your monthly payments, talk to the lender rather than sticking your head in the sand. In many cases, lenders will be willing to work with you to decrease your monthly payments. They may also be willing to grant you a temporary forbearance or deferment. Most of the time simply keeping the lines of communication open will help you avoid unnecessary black marks on your credit file.

Decrease your debt ratio. One things lenders look at is how much debt an individual has in contrast to his or her income. A high debt ratio tells lenders that the borrower's financial obligations are becoming unmanageable, causing the lender to decline further financing. Decreasing the amount of debt you carry can increase your credit rating.

Adjust your spending habits. One of the most important aspects of debt management is addressing the behaviors that landed you in hot water in the first place. If your bad credit marks were a result of spending beyond your means, you must adjust your budget to prevent yourself from landing in the same situation in the future.

Pay more than the monthly payment. Making only the minimum monthly payment on your debts almost guarantees a future of bad credit. Try to pay more than the minimum payment each month, focusing first on those debts with the highest interest rates. Once you've paid off one debt, you can begin paying extra money on the next highest interest loan. Paying more than the minimum payment will help you get out of debt much faster and improve your credit rating.

Repairing a bad credit rating does not happen overnight. The process of improving your credit rating will require patience, persistence, and for you to change the behavior that landed you in trouble in the first place.

What to do next

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