Let’s say you’ve had some financial difficulties and ended up with poor credit as a result of the odd missed loan repayment or credit card payment. How serious are the consequences? Not good. You’ll certainly find it difficult getting a mortgage, but even smaller stuff like a mobile phone contract or getting a credit card could be out of your reach. But the consequences don’t end there.
Whilst a criminal record is a dreadful burden to carry, a poor credit history comes pretty close. Your credit history is not only used to determine whether you can borrow money. Employers – especially those in industries working with money – are increasingly using credit agencies to help them determine how responsible and reliable you are. One blip on your credit record could narrow your employment opportunities.
So what can you do to protect your credit rating? Here are 10 rules:
1: Repair the roof whilst the sun is shining. You can do this by building a cash surplus when the going is good and you’re earning well. Try to use your income to build a spare cash surplus. 6 months income is the ideal amount and could serve you well if times get a bit rough.
2: Keep it under control: It may sound obvious, but having lots of borrowing could make you look overstretched and make lenders nervous about giving you more. Payday loan companies are to be avoided. Borrowing from a payday loan company will automatically damage your credit score.
3: Pay up: Missing or making late payments on anything from your mortgage, credit card, personal loan, gas or electricity bills will stay on your credit file for six years. Don’t be careless. If you’re a forgetful type, pay everything by direct debit.
4: Settle any disputes first: If you get billed for something incorrectly, it is better to pay the bill first and then dispute it. Not paying could land you with the dreaded three letters after your name; CCJ (County Court Judgement). A CCJ will leave a scar on your credit file for 6 years. CCJ’s are frowned upon by lenders and employers; most of them won’t be interested in any excuses.
5: Don’t apply for lots of credit at once. Applying for credit leaves a “footprint” on your credit report so it’s better to stagger applications. Having lots of footprints indicates desperation and we all know that creditors don’t like lending to the desperate!
6: Close old accounts: Lenders will look at how much credit is available to you, not just how much you’re actually using. Having old accounts open that you never use will indicate that you aren’t control of your finances and pull down your credit score. Close them.
7: Make sure you’re on the electoral roll register: This is very important and is used by lenders to determine whether you are who you say you are.
8: Stay put! Moving home a lot makes lenders very uncomfortable. For best results, stay put for 3 years or more.
9: Be careful who you associate with: Being tied in any joint form of credit is known as “financial association”. If you have any joint arrangements such as bank accounts, loans or mortgages with someone with a poor credit, this could affect your ability to gain credit.
10: Check your details: Keep a regular eye on your credit file, which can be obtained from the UKs two main credit agencies; Experian and Equifax. Check for mistakes. If your score is poor, call them and ask what you can do to improve it. A few simple steps could make all the difference.
Being credit worthy takes effort and commitment. Stay on top of it.
Akwasi Duodu, Independent Financial Consultant
Sterling & Law Group plc