There are a lot of people that do worry about their credit score and want to make sure that it stays as good as possible. However, there are times when we need to borrow money and we may worry about whether it will have a negative impact. It is good to understand what credit scoring is and what you can do to improve it.
What is a Credit Score?
A credit score is not what we may imagine. It is easy to think that each of us has some sort of score which will be passed to others, such as potential lenders and they will use it to judge us. However, this is not how it works at all. In the UK, every person has a credit record. This documents activity on it such as borrowing, regular payments, mossed payments. CCJ’s and other information. The record is just a record, there is no scoring or anything else. What happens is that those looking at the record will determine whether they feel we have a good credit record or not. Some of those may have a scoring system but this will depend on the company themselves. They will also all look at slightly different things and make their judgements in different ways. This means that it is not always easy to know exactly what to do in order to improve your credit record.
How to Borrow and Retain a Good Credit Record
There are some common sense things that you do though. Avoiding borrowing may not be one of them, which could come as a surprise to some people. This is because borrowing is not seen necessary as a problem – we might be borrowing to buy a home, for example. However, it is the way that we approach it that is important. Firstly, if we get turned down by a lender and then apply to another, and then keep on trying this will look bad. Firstly, if we are turned down for one then this could put others off even before they look at your credit rating, they will therefore be more likely to turn you down. Also, if you apply for a lot in quick succession it will look like you are desperate for money, which lenders do not like.
Having a loan, can be an opportunity to show that you can be trusted. Make all of the repayments on time and you can prove that you are very capable of managing your money well. However, miss a repayment and you could be in trouble. If you miss just one, then this will be forgiven by some and some lenders may even like that as they know that if you miss repayments they will be able to charge you more in fees. However, if you miss more than a few, then this will put off all lenders as they will want to be sure that they will be able to trust you. This means that it will be very important for you to make sure that you stay really organised when it comes to organising your money. You need to be completely confident that you will be able to make the repayments on the loans and that you will be able to make them on time. If the interest rate is variable, you will also need to be sure that you will cope even if the interest rate goes up. So make sure that you check this all out really carefully before you take out the loan. Also think of some things that you could change if you find that you are finding it difficult to make those repayments.
We all have a credit record and it will show our financial history. That credit record can be looked at by other people and this is why some people will want to try to improve it.
Who Looks at my Credit Score?
It is important to be aware of who looks at your credit record first. You will find that when you apply for a financial product, particularly a loan, then you credit record will be looked at. The company will want to check to see whether they feel that you can be trusted. These companies will be companies such as lenders, insurers and possibly utility companies as well. They will look at your credit record and they will have a way to decide if they feel they are happy to trust you. You will also find that potential landlords will look at it as they will want to know if they can trust you to pay your rent. Some employers may even check it as well. You can look at it too.
When someone looks at your credit record to check to see if they are happy for you to be their customer, this will leave a trace. In other words it will show that they have been looking. This can be fine in some circumstances, for example if you have gone to a comparison website for an insurance quote each insurer will show. However, if you have applied for lots of loans, then this will not look so good. It will look like you are desperate to get some money and have therefore applied to as many companies as possible to get it. This will be frowned upon by others and they will be less likely to lend to you.
Will Improving it make a Difference?
You can make quite a big difference in some circumstances if you improve it. This is because you will be more likely to be able to borrow money, get a home or things like this. Lenders will want to see evidence that you are able to repay loans and so having a loan that you have repaid will help as will making regular repayments, such as for utility bills. You will also need to think about the fact that potential landlords will look at it and so it may make the difference between you getting a home or not. You may even find that you will not be able to get such a good utility deal and may even have to go on a prepayment meter, which is more expensive, if you do not have a good credit record.
You can therefore see, that it could make quite an impact if you work hard to improve your credit record. You will need to think about what areas it might be possible for you to improve. It can be tricky, as everyone has a different idea of what makes a good credit record and there is no standard. However, common sense can help you to do things which are likely to give a good impression. For example, you can make that you always pay everything on time and that will show that you will be able to do that if you took out a loan or needed to pay rent. You can try to repay some loans early, so that you do not have too much outstanding debt. It is also really important to make sure that the details on the credit report are correct as any mistakes could put people off, so make sure that if you get any mistakes corrected.
You may think that it does not matter as you do not need a loan or to move or anything so no one will be doing a credit check. However, you never know when you might need a loan, perhaps if you want to buy a home or remortgage, even change insurer or utility supplier it could make a big difference. So, it is important and it will make a difference even if you only make a few changes.
Most people that have a current account will automatically get an overdraft offered to them so that they can use it if they need it. However, you might be very wise to think about whether you should use it or not before you just automatically take money from it. There are a number of good reasons for this.
Although it can be a very convenient way to borrow, it can be expensive compared to other borrowing options. This means that it is really important that you check out the price of it and compare it to other things. Many overdrafts are charged with an interest rate of 35% to 40%. This interest rate will be the only charge though as they are not allowed to charge additional fees. Make sure that you look at the costs of alternative ways of borrowing so that you can check whether you will be able to borrow I a different way for less. It is worth the effort of doing this because it will make a big difference to what you are paying.
It is also worth being aware of some of the limitations of borrowing this way. Firstly, you will only have a certain credit limit and you will only be able to borrow that amount. All loans have this, but an overdraft could be particularly small compared to some other ways of borrowing. Therefore, you need to think about how much money you want to borrow and whether the loan will provide you with enough money to cover that cost.
It is also worth thinking about the fact that the money is repaid as soon as money enters the current account. This means that it may be paid back quicker than you had hoped for. For example, if you get paid, you may have been hoping to use the money for certain things, but it will repay the overdraft first and there may not be enough left to pay for all of the other things that you wanted.
There are other ways that you can borrow money which might suit your needs better. For example, a credit card will allow you to buy things and not pay for them immediately. If you repay the money before a certain date, you will not even have to pay any interest at all. You can also choose to just repay a very small amount and you will be able to leave the rest until you can afford it. However, you will be charged interest if you do not repay everything, but it could be less than that charged on an overdraft. It will vary and you will have to check with your card issuer as to whether this will be the case for you. If you want to borrow a larger amount then it could be better to use a personal loan. These tend to need to be repaid in monthly instalments and so you repay the money back slowly so it is manageable. The interest can be longer, but because you repay over a longer time period then you may end up paying more in monetary costs in the end. Therefore, you will need to compare the total cost of the loans and then you will be able to accurately see which one will cost you the most money. Of course, an overdraft or credit card does not have to be repaid within a certain time and so you will have to estimate how long it will take you to repay it in full in order to calculate the cost, which can be a bit complex.
There are many things to be concerned with when you take out a loan but the most important thing that you should be thinking about is how to repay it. It should be something that you actually focus on before you take out the loan and come up with a plan to make sure that you will be able to afford it before taking it out. However, if you have already got the loan, it is not too late, but it may be a bit trickier. There are steps that you can work through to make it easier for you to do.
Find out What Needs Repaying and When
It is very important to start with finding out exactly what you need to repay and when. It can be tempting to think that you know this without actually finding out for sure. It is wise to ask the lender exactly how much it will be so you know for sure. Then you will be able to plan properly. If you have not yet taken out the loan you will be able to calculate whether it is something that you will be able to afford or if you have taken it out, you know what you are aiming for with regards to repayments.
Check What you Can Afford
Next it is wise to look at your bank accounts and work out what you can afford. Take a look back over a few months and think about what you have to pay for regularly and how much you pay for these and you will be able to work out how much money you will need. You should also think about whether there is anything extra that you might need to buy this month that will mean that you will need extra money. If you take that figure away from what you expect to be paid, you will find that you will be able to see what is left to repay the loan. If it is enough then that is great, but if it is not, do not despair as you may still be able to try lots of things in order to afford it.
Although you may only be buying necessities at this stage, you may still be paying more than necessary for them. Look at everything you are buying, including things you pay automatically by direct debit and work out whether you will be able to save money by choosing cheaper versions. For example, you might be able to change insurer or utility supplier, swap supermarkets or buy cheaper brands. It can be good to look at every thing that you pay for and then if you can save some money on each item, even if it is only a little bit, that will all add up and hopefully mean that you will have enough for paying the loan back.
If you find that the above is not enough or you do not want to try it, then you can see whether you will be able to earn more money. This can be done in lots of different ways and it can be worth thinking about what you might be able to do. Whether you try to take on extra work, perhaps temping or freelance work, look for jobs online, sell things you own or even rent out parts of your home, there are lots of different options for getting some extra money. It is well worth taking a look to see whether there are any opportunities for you. Even if you find something that just pays a small amount, it could make the difference between being able to repay the loan and not repay the loan.
It is always well worth making sure that you are careful with regards to repaying loans. You need to make sure that you are able to repay them. This is because, if you do not, then you will have to pay even more money as you will be charged a fee. No one wants to pay extra money unnecessarily and so it is a really good idea to do everything that you can to make sure that you avoid having to pay these extra charges. Therefore, you need to have a good plan in place to make sure that you are able to repay the loan.
- Only take out a loan you can afford – to start with you will need to make sure that you only borrow money that you can afford to repay. Make sure that you know all of the details of the loan and carefully calculate whether you will be able to afford the repayment. Use your previous bank statements to guide your decision, so that you can be totally confident that you will be able to repay the loan in full when you need to.
- Find out the repayment amount – it is a good idea to make sure that before you even take out the guaranteed payday loan, that you are aware of how much you will need to repay. With a payday loan you will be expected to make the repayment in full, on the next day that you get paid. You will need to repay the amount that you have borrowed plus the fees and interest and so find out how much this will be so that you are prepared. Do not guess how much it might be but find out for sure as it could otherwise be more expensive than you realise. The lender ill be able to tell you how much it will be or they may have a calculator on their website that you will be able to use.
- Check when it needs to be repaid – it is also important to check when the loan will need to be repaid. This will normally be on your payday but make sure that you check to be completely sure of this.
- Reduce spending – it can be wise to start reducing your spending as soon as you can. Think carefully about everything that you buy and make sure that you are only buying things that you really need. Also look at the cost of the items that you are buying and think about whether you will be able to get them cheaper anywhere else. You will find that you might be able to do this with everything that you buy including insurance, finance products and utilities as well as items that you buy in the shops. It is worth checking prices every time you shop and then all of the small savings that you can potentially make will add up and will make it easier for you to afford to repay the loan and manage your other expenses as well.
- Increase earnings – it can also be worth looking for opportunities to earn more money. There are different things that you can try. You can try to work more hours, either in your current job or by getting another, perhaps freelancing or temporary work. You could also try to raise money by selling things you own and no longer need or perhaps making things to sell. You could also see whether you can find any ways to earn money online, perhaps by doing some surveys or small tasks to earn money. Although it is unlikely you will be able to earn loads, it will be a help towards repaying the loan successfully.