Achieving and maintaining a good credit score is a long term venture. Though you might not be thinking about borrowing yet, most people end up getting a mortgage or a loan at some point in their lives. So, whether you need to get car finance or you’re ready to put down a deposit for a new home, make sure that your credit score and credit report are up to scratch.
1. Always pay your bills on time
Falling behind on payments may make you seem irresponsible to potential lenders. It shows up on your credit report and could have a negative effect on your score.
2. Use a credit card to build your credit
Credit cards can be a great way to build your credit if you have never borrowed before. The best way to do this is to charge small amounts on the card and then repay the sum in full at the end of your credit month.
You might find our guide on credit card strategies for beginners useful if you're new to the world of plastic.
3. But don’t be tempted to misuse it!
Some of the common mistakes when using a credit card are:
– Missing a payment, which will negatively affect your credit score.
– Making only minimum payments: it will take you a very long time to repay the debt as most of the payment goes towards the interest fee.
– Withdrawing cash: you usually have to pay a fee and as it shows up on your credit report, it makes you look like you’re not managing your finances too well.
4. Keep credit utilisation low
Even if you pay off your credit card in full every month, using up a high percentage of your available credit could make you seem like you're struggling financially. Credit utilisation is one of the factors that potential lenders look at, so a good tip is to use no more than 30% of what’s available to you.
5. Regularly check your credit score and report
Keeping an eye on your score will mean that you feel in control of your “financial CV” and you can more easily predict whether your loan or mortgage application will be accepted. Also, looking over your credit report regularly will show up any mistakes or even fraud that might be happening under your name – if you see an account that you don’t recognise, make sure to check it out.
6. Don’t take on more debt than you can manage
This can cause a downwards spiral where you end up taking on more debt to pay off what you already owe. If you find yourself in financial trouble, you might want to talk to a debt charity or the Money Advice Service, where you can get advice on how best to cope with your situation.
7. Avoid payday loans
These are well known to have very high interest rates, which means that they don’t tend to be suitable as a long term solution.
Take a look at our guide to short term loans, which aims to explain some of the complex words associated with these loans, before you think about applying for one.