Steps to Repair a Bad Credit Rating

A credit rating is a score assigned to each person old enough to borrow money. The score is devised by credit reference agencies (e.g. Experian, Equifax) and consists of a number of between 200 and 800 (varies per agency).

The consumer builds up a credit rating by exercising financial responsibility i.e. paying bills on time, other factors such as your income also have an effect.

Generally, people are apathetic towards credit ratings at times when a credit rating can influence their financial affairs the most. For many this is because they presume that theirs is so bad there's no point in finding out, for others; it is simply lack of awareness.

Finding out can be beneficial for a number of reasons; if you find that your credit rating is good or mild, it helps you to make an informed decision as to where to apply for credit rather than risk being tricked into loans for people with bad credit or bad credit cards, if you already have a credit card, your good credit can help you transfer your balance to a lower interest rate credit card.

If you discover that you have a bad credit rating, it's not a situation to dwell on either, it is a situation you can and should change:

On finding out that you have a bad credit rating, the first step you should take is to vigorously check the report for any mistakes; sometimes creditors make mistakes when reporting to credit reference agencies (e.g.; an apparent late payment that you know you made on time). If there are activities on there that you disagree with, call the credit reference agency responsible for the report and dispute the activity, in many cases, they will correct the mistake without much hassle.

The next step should be looking at short term improvement; credit cards, loans and similar types of repayments are in most cases reported on a monthly basis, as you pay them off each month, your credit rating improves by a few points. On the flip side, a missed payment can reduce your credit rating by a few points.

Small mishaps such as late payments are easier to recover from, in fact some lenders might not report them if they're a one off.

Defaults and bankruptcies are much harder to recover from; typically a bankruptcy takes 7 years to come off your record. You shouldn't wait 7 years to rebuild your credit however; you can start now so that by the time it comes off you have excellent credit.