You need to have a good credit score in order to be able to get decent loans, mortgages and other kinds of finance. However, getting and maintaining a decent credit score can seem like a bit of mystery. Here is a quick guide to explain how it works.
Pay Bills On Time
This one is incredibly straightforward. Pay your bills on time. Don’t leave them until the last minute and then rush around only to have the payment go through after the deadline. Instead, mark on your calendar when you need to make payments and leave a few days before the deadline just in case something goes wrong. Better yet, you could set up direct debits for all of your payments and this way they will automatically transfer from your account on the correct day without you needing to lift a finger. A lot of payments will come with this way of paying as default, so you should take advantage of that. If you are paying a current debt back, overdraft or even a regular bill and don’t pay back in time then you will likely see an interest charge, and this will only mean that you end up having to pay even more money, so do your best to avoid this.
Have A Credit Card
It might sound strange, but in order to build a credit score, you need to actually borrow money. Getting a credit card is one of the best ways to help improve your credit rating. If you can make sure to pay the balance off each month and not constantly max out the card each month, then you will steadily grow and maintain your credit score. If possible, you want to use it a little but not too much. If you keep the balance low consistently, then you won’t have any outstanding ‘debts’, and this will mean that your credit score will come back higher. You can get a credit card fairly easily. All you need to do is open a current account and have a consistent amount of money going in each month. Alternatively, you can apply for other types of credit card such as one through PayPal. All of these credit cards will run a credit score for you, but it won’t be as rigorous as if you were apply for a large loan or a mortgage. It is a good idea to get a credit card as soon as possible to start building your credit score when you are young. This will help to prevent any issues that may arise when you are older and want to apply for a proper loan or buy a house.
Pay Off Debts
If you have any debts, then you should pay them off. You want to have as few debts hanging over your head as possible. This doesn’t mean moving money around from debt to debt paying one debt off only to gain another. Instead, you need to truly pay them off. This might mean dipping into your savings or living a little poorer for a few months, but it will be worth it in the end. You can set up a standing order to pay off a consistent amount of each debt every month, and gradually they will come to an end. Once they have, you will notice that you have a lot more money and freedom than you did before and it will help your credit score as you will no longer have any active debts or loans. These debts or loans might be a student overdraft, car finance, credit card repayments, unplanned overdraft repayments, or any number of other things. This might even include paying off the mortgage on your home. Whatever they are, you should make a plan for how you are going to pay them off and by when. Doing so will relieve the stress of the situation, and it will positively affect your credit score in the long run.
Check Your Credit Report
Over time, you should check how your credit score is doing. If you know what it is, you can make a plan to get it to where you want it to be. Checking your credit report will also prepare you if you are planning to apply for a loan or mortgage and you will be able to better weigh your options. There is nothing wrong with running your credit report, and there are a lot of places where you can do so for free or for a very small fee.