How to Avoid Bad Credit

Avoiding bad credit is essential if you want to buy or rent a house, get a car loan, or even just have the latest mobile phone on contract. A good credit score is a definite requirement to get the goods and services you require on the best possible terms. Knowing how to avoid a bad credit rating is really important to help you get the best loans, mortgages or credit cards.

To avoid a bad credit rating, you must:

Avoid late or missed payments - Late or missed payments made on loans, credit cards or many other monthly payments can account for about a third of your total credit score. If you have consistently been late paying bills, have underpaid, or even worse have missed a months payment altogether, this will be hugely detrimental to your credit score. Note that missing several monthly repayments on services such as loans and credit cards can mean the account is terminated and a default entered on your credit file. If you find yourself in the position of being unable to make a payment then contact the lender in advance and try and work out an accommodation. Avoiding bad credit is easy if you pay bills in full and on time.

If you do fall behind with payments try and keep lines of communication with lenders open if possible, this will avoid the debt being passed on to third party debt collectors. Missing repayments on a loan is a serious matter for any lender and demonstrates an inability to repay as per your agreement. This is viewed very badly by any future lender. If a lender recruits a debt collection agency to reclaim your debt, the credit agencies will be informed that the lender have given up asking you for money. Obviously, this is a major factor behind poor credit scores.

Filing bankruptcy may seem like an easy option but will completely destroy your credit rating. Bankruptcy is recorded on your credit file for 7-10 years and in reality will make obtaining any kind of credit very difficult. If you are considering bankruptcy as a solution to debt problems, make sure you know the consequences.

Home repossession is extremely serious and unfortunately a real possibility if you have several late or missed mortgage repayments. Not only that, but the repossession order will be reported on your credit file and will make any future mortgage applications extremely difficult. Contact your lender at the earliest opportunity to discuss any arrears and avoid repossession orders and bad credit.

Sometimes lenders will go through the courts in an attempt to recoup your debt. Understandably, this will significantly damage your credit rating. Once again try and avoid going to court if at all possible by discussing problems with lenders in advance. If you do get served with a CCJ (county court judgement), pay it as soon as possible - a paid court judgement is always viewed more favourably than an unpaid judgement.

Finally, avoid having too many footprints (credit applications) on your credit file, as this will signify to potential lenders a possible high dependency on credit. Try and avoid making more than one credit application at any one time. If you are shopping around for the best deal, make sure the lenders are not all doing credit searches on your file.