Fixing a Poor Credit Rating
Ah! The excesses of youth.
Those days of partying without consequence, travelling without responsibility and splurging the entirety of a salary on fun and entertainment - we worked hard for it and deserve it.
Suddenly it all comes crashing down in a moment’s panic because frivolity has given way to responsibility - getting a mortgage and a family car which fits two decent-sized car seats is more important than necking five pints in quick succession on a Saturday.
Only, the credit isn’t available.
Realistically, a poor credit score might not be down to a period of hedonistic glee, but rather more sobering struggles through the years. Whatever the reason, building your credit rating up from the floor may seem impossible, but with some patience and good money management, it’s within sight.
The Theory of Credit
Understandably, lenders like to lend money to people they can trust to repay the money. When circumstances mean that you have shown yourself to be unreliable at paying money back (or you simply have no history whatsoever), then the lenders are nervous to have you as a customer, even for small amounts.
It is your job to prove to the lenders you are a responsible borrower, able to make payments in full and on time.
Over time, you’ll build up a strong track record of being reliable and you will be seen as a substantially lower risk.
Then, as your credit rating improves, more and more lenders will be willing to offer you their services, for greater amounts.
It’s an uncomplicated system once it is understood.
The first thing to do is to find a company that’s willing to lend you a little, so you have the chance to prove you can pay it back - this is where credit improving cards come in.
Most people with a regular income, even those who’ve previously had bad credit, should be able to get one of these high-interest, low-credit cards - designed specifically to help you prove yourself as a responsible borrower.
Once you have one, you should use it carefully to prove the point you are trying to make (that you are responsible), not to suddenly go out and spend without thinking, which will lead you so far back that square one is a distant memory!
The best way to do that is to buy normal things that you can afford with the credit card, and then pay the amount back immediately. With smartphone apps available for almost every bank account and credit card, this level of instant efficiency is effortless.
For example, if you plan an £80 weekly shop in the supermarket, instead of paying for it with your debit card, use the new credit card. Then – even before you leave the shop – open the relevant app and make a payment onto the credit card for the same amount! While this will tie a little of your money up for a couple of days as the transfer takes place, it will prevent you from making any mistakes.
Using this simple method, you can safely build up your credit score until it is healthy. It may seem like a long process, but after six months, you will already see the benefits.
Further Improving Credit
Keep an eye on your credit score, and check your bank balances daily. Like planting a garden, your credit score grows best when it is left to nurture naturally - watched over but not subject to constant fussing!
After six months or so, you may want to add a second card to the mix. The offers for something with a lower interest rate and other benefits will start to come in - you should choose one and build your credit record accordingly. As long as you keep using the cards, continue to pay them off in full and on time - your rating will grow and the larger things you were hoping to achieve will be within your grasp.
Tips and Traps
Bad money management will lead to bad credit scores. There is absolutely no substitute to being honestly responsible with your money.
Beware the following traps, and pay attention to the positive tips:
Tip : Never spend more than you have
Yes, it’s a credit card, and it will enable you to immediately buy things that have been out of reach, but work with the longer picture in mind. Don’t fall prey to the short-term desire for something you can’t realistically afford. Work as if the credit card is just a ‘passing-through’ financial device, and not something with its own credit amount.
Trap : Temptation
There’s no denying it – we are all human and subject to temptation. It is so easy to think ‘I’ll be able to afford that!’ when in our hearts, we know we can’t. If you succumb to temptation, you may soon find yourself struggling to make credit card payments and your credit rating will suffer, rather than grow, as a result.
Tip : Monitor daily
With online and mobile banking, plus specific credit card apps, it is easier to keep an eye on your finances than ever before. Check them and be on hand to rectify any mistakes you have made as soon as you see them.
Trap : Enticing credit adverts
While you are monitoring your money, the internet will be busy serving up adverts to tempt you to extend your credit even further. Though it may be tempting, stick to your initial plan and stay away from second and third sources of credit until the first six months have been successful.
Tip : Be honest
Talk to your partner or family about your finances. If you have been struggling, then they will be pleased to see you take control, and by talking about it you will gain a better understanding and have help being patient while you wait for results. Be honest and open and do not hide the specifics of your situation with the people you trust.
Trap : Being tempted by others
Avoid those people that want to gain from you personally (or just simply tempt you) by trying to convince you to buy more than you can truly afford. Explain to them that you are working on your credit and you would much prefer their help over their enthusiastic desire to make you spend more!
Tip : Treat yourself
Only the very strongest willed are able to gain hundreds and thousands of pounds of credit and not buy themselves anything. Be honest, and give yourself a small treat that is within budget but makes you feel good; whether that’s a new pair of jeans of a toy for the kids. It will help make it all feel worthwhile.
Trap : You don’t need it all
Don’t try to convince yourself that you need more than a single treat! If you find yourself putting more than one thing in your shopping basket, stop and force yourself to make a choice. Don’t put yourself further in debt!