When it comes to your financial health, you should be concerned with more than how much is in your bank account or how much you are earning alone. There’s another measure of your financial health that is just as crucial for long-term planning: we’re talking about credit. Here, we’re going to offer a reminder as to why credit is so crucial and, from there, look at the steps you can start to take to improve it.
The importance of credit
First of all, it’s important to remember what your credit score really is. It’s a numeric value that is assigned to you, as a person, by a host of credit organizations. Effectively, it’s a measurement of how reliable you are when it comes to sticking to the terms of a credit agreement, whether it’s a loan, a long-standing bill order, or otherwise. Your credit can dictate the terms of future loans you get. Better credit typically means better terms such as lower interest and more flexible payment periods. As such, if your credit score is too low, then you can expect to repay more for each loan compared to someone with a higher credit score, for instance. But how do you improve your credit score?
Make sure that you pay everything on time
The most important way to keep your credit score up is to make sure that you’re not falling behind on your existing credit arrangements. Don’t think about applying for anything else until you’re sure you have your current set-up in order. If you have trouble remembering to pay bills and can easily fall behind that way, then consider using apps that can give you bill reminders, or setting up accounts with your creditors that allows for automatic payments directly from your bank to them. If you’re using rolling credit such as a credit card, then you should make sure that you’re making frequent repayments, rather than just climbing out of the hole once you get deep enough in it.
Get out of unarranged debt
Not all debt is terrible for your credit rating, but that’s something to get into later. Unarranged debt, such as being late on bill payments or falling behind on your credit card can very much be detrimental to your credit score. If you’re deep into unarranged debt (i.e., debt that isn’t tied to a loan that you planned to take out, such as an arranged overdraft), then you should look at ways to get out of it. If you need to take advantage of a debt relief program, then consider making a move on it. The sooner you are out of debt, the sooner your credit score can start to heal again.
Make sure there are no false black marks on your credit report
Your credit report is a record of your past and existing credit arrangements. It is used, in part, to determine what your credit score will be. Every person has the right to access their credit report from one of the three major credit reporting agencies at least once a year. From there, you can take a closer look to see if there are any black marks, such as outstanding debts, that you should take care of. However, it is not uncommon for people to find that there are records that should not be on that credit report, such as late repayments that you don’t really owe, or records that, by rights, belong to someone else. If you see any records on your credit report that don’t make sense, it’s typically recommended that you get in touch with the company that filed the report in the first place.
Make use of your credit
In some cases, it’s not a low credit score that is the problem. You might not have much of a credit history, to begin with. That might sound like a clean slate to you, but most lenders and financial institutions are looking for someone who can provide proof that they are able to stick to their financial arrangements. Making use of low credit options such as guarantor loans, with someone else as a signatory, can help. You can build up your credit history by showing that you are able to stick to the letter of the loan agreement.
Mind your utilization rate
If you’re making use of any forms of rolling credit, such as a credit card or an overdraft, it can be healthy to use them and repay them again. Much like taking on a manageable loan, this is a way of building your credit score. However, you should pay attention to how much you are relying on these forms of credit and how “deep” you are into them. This is known as your credit utilization rate. Typically, a lower credit utilization rate will be better for your credit score. You don’t want to constantly be as deep into your overdraft as it allows. You should use it wisely, instead.
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