Rebuilding your Credit Score with Effective Debt Management

Rebuilding your Credit Score with Effective Debt Management. Lenders use the credit scoring system to assess how much or how little risk may be involved if they lend to you. To think that you have just one credit score is a bit of a misconception. There are multiple credit referencing agents out there as well as some lenders that even calculate scores in-house. This means you technically have multiple credit scores, though you might not expect the differences to be huge.

But there’s no need to split hairs over this. You’re probably here because you want to boost your credit score by whatever means possible. Let’s look at how you can do this, even in the presence of debt.

“Good” and “bad” debt

To get started, we need to know our way around the concepts of “good” and “bad” debt. Credit scores look at how you use or abuse your credit card when calculating your scores. For this reason, many people start with a credit-building card, in the hopes they can prove themselves worthy to the credit score gods.

You can expect around 30% of your credit score to be based on how much outstanding debt you have. For this reason, you should try and keep your credit card balance below 25% of your credit limit each month.

Failing to pay the minimum amounts required results in “bad debt”, which is likely to lower your score.

Improving your credit score by using “debt”

Don’t assume that simply limiting your credit is the way to remain in the green zone. Not necessarily!

It’s often better to have credit but use it responsibly. This proves to lenders that you are a good person to lend to with an established track record.

You may find it helpful to take out a bad credit debt consolidation loan. One of these can gather all your debts into one arrangement whereby you may be able to repay over a longer period.

Limit your credit applications

Before going for that loan or mortgage though, look to see if there’s an eligibility checker that can do a soft search on your credit score. A soft search will give you a good indication of your chances of success, without leaving an imprint on your file.

If a hard search can’t be avoided, be aware that it stays on your file for 12 months. One hard search shouldn’t do too much to your score, but multiple hard searches within the same 12-month period probably will!

Make timely repayments

Aim to pay off any instalments or credit card payments due in full each month, if you can. Setting up a direct debit means you don’t run the risk of forgetting, but you must ensure that there’s enough in your current account to cover this.

Think before you ditch those old accounts

Many people assume that cleaning up their credit accounts will help them! However, old accounts can help with your credit score immensely. Long-standing loyalty to a lender usually works in your favour, accounting for around 15% of your score.

Have you fallen foul of “bad debt?” Being canny about the way credit scores are calculated can help you start climbing the ladder back to a healthy place.

Hope you’ve found our article, Rebuilding your Credit Score with Effective Debt Management useful.

Thank you for taking the time to read my post. If you’d like to add a comment or thought on this post, please use the comments section below. I can also be contacted via the online contact form. Keep up to date with the latest news on social media.