Looking after our credit is something we all need to keep on top of. If we don’t, we stand the chance of putting ourselves at risk of not being able to take out a loan when we really need it. Even something like buying a mobile phone or a sofa that is interest free could be hampered of you don’t have a good credit record.
You can be unwittingly be putting yourself in a bad financial position just because you aren’t doing a few sensible things.
Only paying the minimum amount
If you just pay the smallest amount that your credit card company will allow, it is going to take you a very long time to pay off your balance, and it really will be a very long time if you have built up a sizeable amount on your card.
Try to pay off chunks of the debt on each payment. The minimum balance is normally quite low so it shouldn’t be too hard to pay back more than this. If you really can’t afford more, then of course pay the minimum balance for the short term until you can afford to pay more, but don’t do it long term.
Close old credit card and loan accounts
It won’t help your credit score if you have lots of credit accounts open. When you pay off a credit card, close that account if you have others open. One or two will be fine, but lots of them could land you in difficulty when trying to get credit in the future.
Making lots of applications
It doesn’t look good on your credit report if you are making lots of applications for credit. Applying for credit leaves a trace on your credit record which will stay there for other lenders to see. If you do this a lot it will ultimately lower your credit score and make it harder to take out another loan. Only apply for credit if you think you have a good chance of being accepted.
Don’t miss payments
It is important to make each and every payment on your loan accounts. Missing a payment will definitely lower your credit score and could be a major hurdle to obtaining any new credit. Lenders will find it hard to trust someone who has missed a payment because as far as they know it could be a signal that they are having financial problems and will be a risk to lend money to.
Keep an eye on your credit score
Make sure you check your credit report regularly to avoid any problems coming up that you didn’t know about. Sometimes you might find that there has been a mistake and a lender registered that you missed a payment when you hadn’t. Keeping on top of this will allow you to avoid any issues like this.
Loan agreements are important
When you sign up to a loan you are effectively signing a contract. Like many contracts there will probably be small print that you need to read, if you don’t, you could be signing up to something that you are not comfortable with and it will be your fault. If you signed an agreement, it means that you have agreed to the terms, and assumes you have read it properly. Lots of loan companies have extra administration charges for late payments, so you need to read what they are before you sign the agreement.
Keep track of your finances
If you are on top of your finances you will be less likely to make late payments and you could put yourself in the position to make extra payments on your loans because you have budgeted more effectively.
Setting up a simple spreadsheet on a computer detailing your income and expenditure is a good way to budget. There are also budgeting apps that will help you track your spending simply on your mobile phone wherever you are.
Limiting your spending
Putting yourself in unnecessary debt will only worsen your credit score. At certain times of the year, especially Christmas it can be tempting to overspend, but then this puts you at risk of not being able to make the regular payments. Spend within your limits and you are less likely to have to default on payments.
Pay off your loans
If you can afford to pay off any loans you have, then it is best to. The less lending you have, the less likely you are to harm your credit score. It is always best to be more cautious when it comes to borrowing money.
If you haven’t been able to avoid problems with credit then Citizens Advice may be able to help and offer advice on your particular situation.