It is not an underestimation that we are all experiencing some form of financial tension at the moment. Whether it’s people who are buying a home (Read my guide on my experience of buying during the Covid19 Pandemic) who are trying to save every single penny, or people who are worried about their job having come off furlough, the horizon can appear grim. But when we are trying to progress to the next stage of our lives, whether it’s buying a home, or making sound investments, it seems that one of the best things we can do is to address our credit. I know I personally had to check every day to see if my score had changed, it was definitely a very stressful part of applying for a mortgage. Having bad credit is the benchmark for so many things, such as if you can get a car on finance, get accepted for credit cards, and of course, buy a home. But what does it take to address your credit score, and your credit situation, but ultimately, fix them?
Keeping Your Finances to Yourself
This is important if you have a partner or a housemate that has very bad credit. When you are financially linked to someone, the powers that be will look at the score you jointly have. This includes flatmates when you share joint bills, and if you are trying to fix joint credit, it’s important to start with a base level of credit.
This means you may need to spend some time addressing your financial situation with your significant other, and potentially work hard at getting your finances back to a more presentable level. While there are companies like Buddy Loans that can provide direct or guarantor loans, which is very important when you’re buying a house, you have to remember that your credit score is your responsibility. If you have a joint account, also have your own.
Keep Track of Your Credit Records
There are a number of things that will impact your credit score, for example, where do you pay bills on time or not, using your overdraft and the amount of ‘credit accounts’ you have – more isn’t necessarily bad, as long as you’re up to date with payments. When you are looking to buy a home, or make a significant investment in something, you’ve got to look at every single aspect of your credit profile. You need to make your credit rating as attractive as possible because this is what lenders will assess you on.
This means making sure that all of your address histories are up-to-date and are put onto the electoral register, and also making sure that you access your credit reference reports. This is a fantastic insight into your credit score, and registering for your reports at Experian and Equifax gives you insight. It is free to check your credit report, and this should be done as a matter of priority because the score will have a significant impact on your ability to borrow.
Be Aware of Your “Footprint”
A credit footprint is so important, especially when you apply for a credit product such as a mobile phone contract, car insurance, or a credit card, and any of these will add a footprint to your file, which lasts for a year. The important thing to remember is that if you apply for too many in a short space of time, it can reflect badly on you.
If you get many rejections, it looks like you are desperate for credit, and this sends alarm signals to credit agencies, so make sure that you space out any applications. The best way to do it is to think about applications being the same as spending. Because do you need to apply for another credit card?
Use Your Credit
You may have worked hard to get your credit score into a good place, but it’s important to remember that the idea of credit is based on your ability to use it properly. You may apply for a credit card and get one in place, so you can establish good credit, but if you do not use this credit, it can reflect badly on you. It is so important to build a credit history.
The whole idea of credit scoring is to predict future behaviour based on your history of spending. So if you have a very little credit history, you need to build up a decent history to show that you are responsible with credit. Of course, if you have a poor credit history, getting it is more difficult, and the best approach is to get a credit rebuild card. There are many credit cards for bad credit that can help, but the Catch-22 is that these cards have very devastating rates, usually around the 35% APR mark. But it’s so important that you repay the card minimum in full every month, and not withdraw cash you will not be charged any interest. So just make sure that you spend on something that you need, for example, petrol or shopping. But you have to pay off the spending straightaway.
Reduce Your Debt
This is the most important way to fix bad credit. Debt is the biggest killer on your credit file. If you have too much debt, this will hurt your chances of applying for credit. This is why you have to pay off expensive debt. There are a number of methods that you can utilise, such as the debt snowball method. But also, it’s recommended that if you want to pay off any expensive debt, you may want to use your savings. This is for the very simple reason that if you are being charged a monstrous amount of interest, it will be cheaper to use your savings, rather than getting charged extra interest which means you are barely digging yourself out of the hole.
It’s so crucial to look at your outgoings and properly scrutinize every single penny. Because if you are in the process of applying for a mortgage or making an offer on a house, they will look at the last few months to see any specific patterns of spending. Taking the opportunity now to cancel any unused credit cards, address your outgoings, and figure out how to live on a threadbare budget in the short term will make a massive difference.