How To Manage Your Money In A Way That Boosts Your Credit Score
Staying on top of your financial life will help you to flourish in the future, and prevent you from running into avoidable stress and hassle. If you don’t control your money and what it’s doing, in other words, then your money will end up controlling you and what you are doing. You might have to work extra hours to pay back a loan, or retire later.
One of the most important metrics if you’re looking to borrow money is your credit score. This is a summary of the risk you represent for lenders, which is shared by every organisation you might seek to borrow from. By driving up your credit score, you can enjoy lower rates of interest, more generous loans, and greater flexibility when it comes to repayment schedules.
Understanding Your Credit Score and Why It Matters
In the UK, your credit score is determined by a handful or organisations, known as Credit Reference Agencies. These all calculate their scores in different ways, and they have access to different kinds of information. As such, the score you get from Experian might differ from the score you get from Equifax or TransUnion.
Scores tend to be expressed as a number between zero and a thousand. The higher the score, the better. If you’re in the 900s, then you might present less risk than a person in the 700s. If your score is below this, then you might consider ways of boosting it. It’s worth bearing in mind, however, that different lenders will look at different criteria, and so there’s no ‘magic’ number that will make the same kind of difference for every would-be borrower.
The Golden Rule: Paying Bills on Time, Every Time
The best way to boost your credit score is to be consistent in your repayments. If you’re late, then your score will suffer. Thus, it’s a good idea to set up a system for payments that will deal with it automatically. This will ensure that utility providers, credit card companies, and other creditors won’t have to chase you. Standing orders and direct debits offer a simple and powerful way of making this happen. Just be sure that you have enough money in your current account.
Managing Your Credit Utilisation Wisely
It’s a good idea to pay attention to the proportion of available credit that you’re actually using. If you are borrowing as much as possible, all of the time, then the impression you give will be poor – because you’ll be more likely to default when you run into financial difficulty.
You should aim to keep your credit utilisation (that is, the proportion of available credit that you’ve actually borrowed) at no more than three-quarters. Understanding this is critical if you’re faced with extra debt. When you come to take out car finance, or a new credit card, ask yourself whether you’re going to end up near your overall limit.
Avoiding Common Pitfalls That Harm Your Credit Score
So, what are the habits and behaviours that ultimately drive down your credit score? Ultimately, it’s missed payments and defaults that will hurt it. If you’re dragged through the courts because of your debts, you can be sure that the agencies will learn about it. But you might also look at more subtle indicators, like the amount of credit you’re applying for in a short space of time.
The best approach is to look at cutting your spending wherever possible, and to avoid taking on new debt. You might also look to consolidate your debt into a single loan, especially if your debts are high-interest.
Building a Positive Credit History Over Time
Turning your credit situation around typically takes years, rather than months. You’ll want to form the right habits when it comes to spending, and pay down your high-interest debts as fast as possible while making the minimum payment on all of your loans. There are also quick ways of building up your score, including registering to vote, and applying for a credit-builder credit card, if your credit history is limited.
