Imagine this scenario: you’ve been trying to apply for loans, but have been mysteriously rejected countless times. You’re close to giving up on borrowing money from banks because you have no idea what’s going on.
If you’ve been following our content, you would have already recognised this scenario as someone who has a very low credit score. Perhaps you’ve used our iMoney CreditScore and found out the truth about your credit score.
How did you get here?
There are several factors involved in your credit score. How these factors and which contribute to the actual score vary according to individual financial institutions, but we can give you a general outline of how it works.
Your payment history takes into account whether you’ve been paying off your debts like credit cards, loans, and mortgages. In this case, a single missed payment probably won’t hurt you all that much; several missed payments will almost certainly send your credit score crashing down.
How long a financial institution tracks your payment history varies and is generally kept secret. A rule of thumb is that older missed payments carry less weight that more recent ones. So don’t sweat too much over that one missed bill from three years ago.
That said, this is the most common culprit for those with low credit scores. Maybe you just aren’t earning enough to deal with all that debt, or maybe you made some really poor decisions. Either way, these issues need to be addressed in order to raise your credit score.
Other factors that bring down your credit score
Missed payments certainly contribute to your low score, but that is only a part of why you’re in this predicament.
At this point, you may also be dealing with many of the other factors that affect your credit score. For instance, you may have applied for too many loans and credit cards within a short amount of time. Banks get suspicious of people who try to take on too much debt too quickly.
Maybe your credit history is extremely short, leaving very little trace of how you’ve been doing financially. An empty history generally means that you haven’t been taking loans or have never owned a credit card. This may happen to younger people who haven’t had time to build a line of credit, but it can also happen to older individuals who have been avoiding financial institutions for whatever reason.
Finally, you could be one of those unlucky individuals that are being sued in court. Potentially being subject to a fine, pay damages, or worse will drag your credit score down.
How do you get out of it?
We cannot presume to know your financial situation. There could be a huge number of reasons that you’re in this predicament. However, we can give you a general outline of what needs to be done.
The first thing to do is take a good honest look at what iMoney CreditScore is telling you. It will provide you with a list of which of these factors that are affecting your score. It will also give you advice on which aspects to look into first.
Some actions will be easier to take than others. For instance, if you’ve been desperately applying for personal loans to deal with debt; just take a break. Constant rejection not only tanks your credit score, but also impacts your morale.
A poor rating mainly impacts your ability to take on new debt, so your priority is to start dealing with what you owe. Contact your bank if you’re having trouble paying off loans and credit cards. Most institutions will be happy to negotiate new terms or offer you a different repayment scheme.
Alternatively, you can also contact agencies like AKPK; who offer financial counselling. AKPK even offers its debt management programme free of charge to individuals.
You need to be aware of how much you can afford each month before going into this negotiation. Take stock of your finances and figure out how much you can spare. This might mean cutting back on your lifestyle and living like a hermit for a while, but the end result will be worth it.
Accepting a new deal that you’re still unable to handle is a waste of everyone’s time and energy.
Once you’ve rearranged your finances into something manageable, then comes the hard part. Actually sticking to your plan. It’s no fun to have to sit back and deal with debt when everyone else is going out to have fun, but nothing worthwhile was ever easy.
Your credit score is updated every three to six months, so it’s important that you come back to iMoney CreditScore to check on your progress. If you can start raising your score to the next threshold, you can begin the next step in your financial rehabilitation.
Try debt consolidation
Now that you’ve picked yourself up and taken concrete steps to boost your credit score, your chance of being approved for a loan has improved. Which is why you need to start thinking about consolidating some of that debt. It’ll reduce your monthly payments and give you more funds each month to deal with those debts that you cannot consolidate.
Debt consolidation doesn’t necessarily have to come from a personal loan. Some credit cards also offer credit transfer options. Your iMoney CreditScore dashboard shows several financial products that we think will help your end goal. Feel free to check them out and see if they fit into your plans.
Get started on the right path to financial stability
Getting stuck in debt may not have been completely your fault. Things like this happen. What matters now is that you take steps to get out of this pit.
Your credit score is not your be all and end all, but it is a pretty accurate reflection of your financial health. Raising your score helps more than you think when it comes to everyday life. Especially when you have the comfort in knowing that you can get a bank loan or new credit card if you really need it.
Written by Farhan Gazi