You’re halfway through the year, stuck with bad credit and worried about your credit score. If this sounds familiar, then stick around.
If it’s any consolation, you may not be the only one. After braving the financial hardships of the last few years, many Britons, young and old, are grappling with bad credit. This should come as no surprise, as borrowing demands have hit an all-time high in the wake of rising prices and inflationary pressures.
That said, bad credit, although hard, is not impossible to recover from. Fintech has made credit more accessible and inclusive than ever before. You can use a range of financial tools to rebuild your credit and make wiser financial choices.
In this article, we discuss 5 smart habits to help you overcome bad credit and future-proof your financial health.
1. Prioritise Eliminating Debts
One of the most effective ways to overcome bad credit is to prioritise eliminating debts. This is especially important if you’re struggling to keep up with multiple payments or feel overwhelmed by financial stress.
If that’s the case, it might be time to explore debt management options. Experts often recommend low-risk personal loans or debt consolidation loans, which are specifically designed for this purpose.
These loans bundle your existing debts into a single repayment with a fixed interest rate, making your payments more manageable. They also count toward your payment history, helping to rebuild your credit score over time.
2. Set up Autopay to Avoid Missed Payments
Autopay has revolutionised the way people make and collect payments. Once set up, it’s relatively hassle-free, saves time and effort on mundane but important tasks such as paying bills or making debt repayments.
It’s a smart and convenient way to avoid late payment fees or prevent missed payments. It takes the stress out of manually paying each month and prevents you from entering your billing information every time.
Why is this so important? From a credit perspective, even a single missed bill/repayment can hurt your credit score. This doesn’t help your case when you’re trying to overcome bad credit.
With autopay, you’re also able to track your expenses and purchases better, helping you to make adjustments to your budget as required. To make the most of this system, get your bill payments and debt repayments aligned closer to your payday. This will make for a smooth and streamlined process.
3. Keep Your Credit Utilisation Rate Low
Ever wondered what a credit utilisation rate is or why it’s important in overcoming bad credit? In simple terms, the credit utilisation rate is nothing but your revolving credit divided by the total credit amount issued to you by your lender. Often used in percentages, lenders use this rate to gauge how well you’re managing your credit.
To illustrate, if you’ve used up 70-80% of your available credit, lenders are going to view this unfavourably. From a lender’s perspective, a high credit utilisation rate doesn’t demonstrate good credit management. On the other hand, if your credit utilisation rate is 30-40%, you’re viewed in a more positive light.
For this reason, finance gurus always recommend using no more than 30% of your credit limit. Consider keeping your old credit cards open to maintain a healthy credit utilisation rate. This can boost your credit score and help you overcome bad credit in due time.
Conclusion
People often mistake overcoming bad credit as if it were a short sprint instead of a marathon. The truth is, overcoming bad credit takes time, patience and effort. From effective budgeting techniques and choosing the right credit options to rebuilding your credit and integrating autopayments, you can choose from a variety of smart habits.
These can help you streamline your monetary resources and give you a better grip on your financial health. When done right and consistently, these habits can positively transform your financial health while building a more resilient financial future for yourself.
Incorporating these smart habits into your monetary planning can be helpful for your financial future and security in the long run. It’ll also help in alleviating your budgetary stress, give you peace of mind and prepare you better for a rough patch.
