We all have a credit score, and depending on how we have treated our finances throughout our lives, will be either good, average, or bad. Sometimes we find ourselves in a situation where our credit score is affected in a negative way which wasn’t our fault, and sometimes we end up with a bad credit rating due to silly decisions regarding our finances. It’s always worth remembering if you find yourself in a bad situation, you can always rebuild your credit score back to being good.
If you’re starting fresh, there are a few things you can do to help build and maintain your score.
First, we should remember that borrowing more than we can afford to pay back is always going to be a bad idea, so always borrow within your limits. Getting a credit card to buy things you can’t afford is the first step into falling down a slippery slope of debt. However, using a credit card to your advantage is a brilliant way to build a credit score. If you pay off your credit card bill every month in full then it shows lenders that you are responsible and disciplined enough to borrow within your financial means, this improves your credit score and makes more credit available in the future.
The same general rule applies for taking out a loan, even if you’re offered a loan that’s larger than you were expecting, still only take what you can afford to pay back. If you find you’re struggling to pay back your loan(s) and don’t think you will be able to, then there is another way aside from bankruptcy to help you out of a sticky situation.
An Individual Voluntary Arrangement is a good way to hit the reset button; this is a brilliant option to take if bankruptcy isn’t an option for you. An IVA is an agreement between you and your creditors and is a legally binding contract that has to be upheld by all participating parties. Many people find this a better option as rebuilding your credit rating after an IVA is a faster and easier process — some are within five to six years. This will give you a chance to start again with your finances, free from any debts and financial disputes. If you own a home, own a business, or have a job you will lose if you declare yourself bankrupt, then an IVA is definitely a better option.
Don’t Use All Your Credit
Using only a small amount of credit that you’re given will show any lenders that you are responsible and intend on paying back whatever is borrowed either in one payment or a few. Maxing out your card, unless you are able to pay it off in one, is a sure-fire way to rack up interest fees and will show your lender that you haven’t taken your finances seriously. This will end up affecting your credit score if large amounts are left unpaid. The best way to build a score with a credit card is to keep your borrowed amount under 30% of the total amount given.
Start With One
Always start with only one credit card, this way it keeps the payments at a manageable level. Having the ability to use a number of different cards is tempting and will only get you into trouble in the long run.
On top of this, too many inquiries into your credit score can affect it in a negative way. Every time you inquire into your credit score, it can negatively affect it, which is something that happens every time you open a new credit account. Try to learn how to be responsible with your credit before looking into borrowing more money.
Make Payments the Right Way
There are a few ways to make sure that your lenders and the bank know that you are taking your loan or credit card seriously. Firstly, we should always make our payments on time, the best way to do this is by setting up a direct debit to come out of your account every month a few days before your credit card payment is due. If you don’t have a large sum on your credit card and use it month by month, then setting an alarm to pay your bill can be a good way to remember. Late payments on a card or a loan can have a really bad effect on your credit rating.
Another way is to always pay your balance in full if you are able to, this is a really good habit to get into, and will have a brilliant effect on your credit rating.
Leave Your Account Open
Once you’ve paid everything off your credit card, the best thing to do is not to close the account but to leave it open. Having an account that has been aged shows a better financial discipline and will be good for your credit rating in the future.
If you’ve found yourself in some debt then try not to worry about it. There are many ways to pull you out of the red and into the black. Take every day as it comes and do everything you can to improve your credit rating, you’ll get back to financial health before you know it.