How to Deal with a bad Credit Score

A credit score is probably the most important number in your financial life. It’s a number that tells the bank how trustworthy you are and how likely you are to repay your debts. It comes about by taking out loans and returning them over time and the credit agencies forming their stats based on that.

When you have a bad credit score you may not be able to borrow money or you’ll get a worse deal in terms of the interest rates you’ll have to pay. Here’s how to fix that problem over time.

Check the score

The first step in dealing with a bad credit score is rather simple but you’ll be surprised how often is overlooked. You should check your score regularly and know what it is. It’s especially important to do so if there have been some big events in your financial and business dealings.

It’s also important that you understand how the score is calculated and what does it mean for you. This will often require the services of a financial professional who will interpret the score for you.

No more debt

The score is repaired by returning what you owe in a timely and organized manner. That’s only possible if you’re not borrowing more until you repay what you owe at the moment. The second step needed for repairing a bad credit score is therefore to stop borrowing altogether until you’ve paid your debt.

That will sometimes mean your business will need to limit its operations and you’ll need to limit your personal spending until you’re able to do it with your own funds or until you’re able to borrow with a better rate in the future. This is usually the most difficult step because it requires sacrifices.

Modified payments plan

The first thing you could actually actively do in order to improve the credit score is to start a modified payments plan. That means that you’ll start repaying what you owe but not with the same rate and over the same time as you did before.

You’ll probably start with smaller payments and repay the debt over a longer period of time, but with a higher rate. There’s also an option of holding off the payments until you have accumulated the resources to get into debt reduction.

Debt settlement plan

This is a worse option than using a modified payment plan.  However, if it’s the only option you can take at the moment, you should because it will lower your credit score, nevertheless. This is mostly done by offering to provide a lump sum of money right away and thus settle the debt at once, but not its full amount.

Sometimes the banks sell the debts to collectors, when you can’t make the payment at all. This is even done at the rate of only ten percent of the whole debt. Repaying it this way will still lower your score, but as much as an ordinary repayment would.

Credit counseling agency

Dealing with debt management isn’t always a thing you can do on your own. It’s often best to hire the agency to help you with this initial stage and allow you to make the most of it. This is an additional expense you’ll have to make when you’re already in debt, but it’s a worthy one.

For the most part the agency will take a look at your finance and bounce ideas of you in terms of how you can repay what you owe. The final decision on how to do it is up to you.

A secured credit card

Once you’re ready to start creating new credit again, you should acquire a credit card once again. That’s essential for covering business expenses and it gives you more wiggle room in your work. However, you can’t have an ordinary card right away and you should use a secured credit card until you get back on your feet.

With a secured card you need to put in a deposit in a bank and you’re able to use the amount that you’ve deposited meaning that it’s the most you can buy with the card. You get the deposit back once you’ve paid of your new debt.

Conclusion

A bad credit score comes about when you don’t pay your debts on time and when you’re unorganized with your finances. It can be a burden for a business owner because it means you can’t borrow or you can only borrow with bad rates.

There are ways to fix it. They are mostly about making a plan on how you plan to repay your debts and sticking with it while not overstepping your bounds in terms of finance. It takes time, but it’s worth it.