From the moment you start to become financially independent you start to accrue a credit rating. Your bank account, whether it’s tied to a debit card or it’s a credit card-based account, is influenced by actions like paying bills on time, taking out loans or going into an overdraft, each of which has the potential to both slowly raise a credit score or lower it. In fact, it’s not hard for a credit rating to decline sharply, which makes building it up a slow and difficult process.
Whether you’re looking to save up for a mortgage or you need to get approved for leasing a car, you’ll find yourself coming face to face with your credit score. The science and logic behind a credit rating can seem strange and incomprehensible, yet in reality, there are some simple ways that you can ensure that you have a good credit score. Even if you’re in the red, feeling embarrassed about your financial prospects or tackling large debts, there are ways that you can make yourself an appealing prospect to lenders.
This is why a good credit score is so important, as even if you’re burdened with a little bit of credit card debt you’ll still be seen as a more appealing choice for lending money from banks and lenders than someone who has never borrowed money in their life. Gone are the days where simply saving money can guarantee a good credit rating, as lenders need to have proof that you’re capable of borrowing money and paying it back.
With this in mind, we’ll explore some solutions to getting out of a bad credit rating, how to maintain an average credit rating or even strive for an exceptional credit rating.
What Causes Bad Credit (and What to Avoid)?
There are many different contributing factors when considering your overall, fluctuating credit rating, ranging from small introgressions to large black marks on your permanent history. One of the most common ways that you can start to see your credit rating lower is with the relatively innocent issue of failing to pay a bill on time.
This can sometimes be seen with a kinder eye, such as if a bill is paid swiftly and it something small like a phone bill, but it does still hold the potential to snowball into a major problem if left unchecked. One of the worst missed payments you can make is a rent payment, or even worse, a missed mortgage payment; these are the types of missed payments that can ruin your credit rating.
Some other, less common issues that can see your credit rating fall are CCJs and IVAs. Acronyms for County Court Judgments and Individual Voluntary Arrangements, both CCJs and IVAs are considered terrible for your credit rating as they essentially mean that the court needs to become involved in your finances. In short, CCJs are court-ordered debt repayments, whereas IVAs are debt-repayments that are taken to court yet are voluntarily undertaken.
These can be amended from your record, yet they take years of effort to do so, as well as confirmation that they have well and truly been dealt with. There are other things that can seriously hamper your credit rating, such as the most severe example of bad credit, declaring bankruptcy, but these are much rarer and can be potentially impossible to remove from your record.
Consulting Exterior Experts
Although it’s wise to do thorough research yourself, enlisting external assistance when seriously looking to improve your credit rating can be worth its weight in gold. This is especially true for anyone trying to improve their credit ratings for the likes of a mortgage, particularly if they’re searching for a lender with the somewhat elusive title of ‘bad credit mortgage’ in mind. It’s these cases where specialists such as Independent Mortgage Advisors can display their strengths, yet there are plenty of other specialists for general financial advice or other specific requirements.
Even with the internet at our fingertips, it can be incredibly hard to find the right information about how to improve your credit rating for specific purposes, yet there’s plenty of useful advice for improving your credit rating in general. Some may be harder methods than others, yet overall they’re worth it for trying to improve your credit score; something that almost any financial expert will back up.
By seeking out experts, such as Accountants or Financial Advisors, you can gain unbiased advice that can be tailor-made to your situation, thus making it much better and useful for you specifically.
Using Credit Cards Wisely
As aforementioned, in order to accrue a good credit rating, you’ll need to prove to lenders that you’re capable of borrowing money and paying it back promptly. This is why many banks will suggest taking out a credit card when you’re of age as, if handled correctly, they can be incredibly useful tools for improving a credit rating.
Search for a no to a low-interest credit card with a low limit and only use it for small transactions. Then, continuously pay them back, so that your balance isn’t in the red for too long and is mostly in the black. These small yet significant actions will, bit by bit, show that you’re a reliable lender that can always keep on top of payments.
It can be easy to fall for temptation when using credit cards, such as allowing more and more of your credit to be used up, which is why it’s important to stay on top of repayments. However, should you slip and find yourself making interest-ridden payments whilst in the red with your credit card debt, you should still have the opportunity to improve your credit rating.
One of the best ways to do this, other than discussing your options with independent financial advisors, is to find a no interest credit card that you can transfer your existing credit card balance to. These can be hard to successfully apply for, but if you can find one then it can result in both an easier way to make repayments as well as a means to do so without having to pay any interest.
Above All Else; Never Miss a Payment and Keep Saving
Regardless of whether it’s a hefty payment for a car on lease or a small direct debit for a monthly service, ensuring that you’re always consistent with payments is one of the best ways of showcasing your reliability to money lenders. It’s easy to let missed payments snowball into a big problem, so ensuring that you keep on top of your direct debit transfers and monthly bills can be one of the greatest ways to improve your credit rating.
Plan out your month and make your life as easy as possible by having any and all bills and payments come out of your account on the same day if possible. It should go without saying that if you’re trying to raise your credit rating or simply get out of debt, you should examine your out-going costs to see if you can cut anything out of your life. Until you’re in a safer place financially, the likes of subscriptions and charity payments should probably be cancelled or put on hold.
While primarily saving money in itself isn’t particularly effective at increasing your credit score; it’s what you used the savings for that counts. If used in conjecture with other tips, such as small credit cards and ensuring no payments are ever missed, you can have a savings account as a kind of ‘buffer’ account. By ensuring that you’ve always got some money stored away, you can stop any negative impacts on your credit rating.