A Beginners Guide To Building A Better Credit Score
Credit history is a subject that’s peppered with difficult terms, long conditions and some very difficult terminology which requires a pretty high degree of understanding to get your head around. It’s not easy to immediately understand credit, but we thought we’d provide a beginners guide to building a better credit score, so in the future you might find managing your personal finances simpler.
Credit is pretty important in this economy – it underlies many of the financial transactions you carry out, and provides a history of your finances in the form of a number which can be taken as an indicator of your reliability in paying debts.
What Is Credit History Anyway?
When you go looking for a loan, a mortgage or any other sort of financial arrangement where you’re borrowing money, the lender needs to have some sort of idea of what your previous transactions and borrowing history looks like. A lot of places won’t lend money to just anyone.
Your ‘Credit History’ is the standard way for them to do this – and the historical data on your credit translates into a ‘Credit Score’. If you have what’s known as ‘bad credit’ you’re less likely to get finance from lenders, so building a ‘good credit history’ by making an effort to borrow, and repay on time.
How To Build Good Credit History
For absolute beginners, it’s important to let banks and other companies who handle credit that you’ve spent a good and financially virtuous life, repaying your debts on time and otherwise being reliable. The easiest way to do this is building a credit history from the ground up.
To build trust with a bank, it’s a good idea to open a savings account where you keep a reasonable of money on hand to prove you’re not just living payday to payday. However since minimum wages are appallingly low currently compared to the rate of inflation, this is harder than it sounds.
The best way to keep your savings account safe is to put in as much as you can, and hold onto it. The bank will realise that you actually have some financial clout and this may make them more likely to consider your history of having a steady income when you ask for a loan or overdraft.
Applying For Your First Credit Card
Credit cards are great for building credit because you can use them to pay off things like food and petrol in the short term and pay them off at the end of the month when your pay slip comes in. This will start building your good credit history, and it will make your life that little bit easier.
When you’re looking for a card to apply for be sure to check the card’s details: Look out for the APR (annual percentage rate), charges for late payments, any fees, the minimum payment due date and the date interest is charged from. Understanding all things will help you avoid late payments, interest on your debts, and bad credit history.
If you’re not approved for the card you want due to poor credit history or a poor credit rating, don’t worry – there is no ‘universal’ credit score so you may have better luck elsewhere. For example, your bank may be more or less likely to approve you given they have all your account history on hand.
Price comparison sites may also be able to help you get a card that’s better suited to you, but be careful to not apply for too many and try to make the best choices possible when you apply – your credit history also tracks these applications and lenders may not approve you if you’ve made too many.
Best Ways To Use Your Credit Card
The fundamental rule of credit cards is to NEVER overspend and ALWAYS pay them off. If you have problems with spending this may be difficult so always be sure to NEVER take or use this card on luxury goods, clothing, electronics, nights out, or holidays – or anything outside the BASIC things you need to live your life.
However, if you use a card regularly on things you are guaranteed to pay off, this will be great credit history evidence – for example if you only use it to do a weekly shop once a week, use it for those extra bits you need to buy outside your weekly shop and to pay a monthly utility and internet bills.
If you use the card for things you would pay for in cash anyway which you can afford and pay it off at the end of the month, that’s good credit history.
If You Have Bad Credit Or A Poor Credit History…
There are other ways to rebuild your credit history or start one from scratch if you don’t qualify for a card with a good rate of interest – however these Credit Builder Credit Cards can have a phenomenal rate of interest designed to punish you heavily if you can’t pay.
These high risk cards can be used as a way to build up a bad credit score, or to start you off, but you have to follow the rules above even more strictly and even limit the use of the card further to avoid accidents or problems down the line in case you can’t pay your bills.
Also consider building your credit score with these ideas:
- Register to vote
- Check your credit file for mistakes
- Pay every bill you get as soon as possible
- Stay at your current address for a number of years
- Eliminate any outstanding debts you have
Here at George Banco we also offer ways to help build your credit history – a credit building guarantor loan lets you have a fresh start if you’ve had bad credit in the past, as it’s supported by an eligible third party. By paying it off on time with no problems, you’ll build a positive credit history and can get your credit score back on track. Check out the rest of our site for more details or give us a call on 01225 941941 to see if we can help you.
Getting Advanced Advice
Building your credit score can be a lot of work. There’s a lot of ways to do it and a lot of things to consider as well as what we’ve put here. As this article is more of a light ‘how-to’ guide, here are some other places you can find better quality financial advice and help too:
- There’s a really good guide at MoneySupermarket which explains ‘Good Credit’ in detail and how to look up your credit score – as well as things to avoid.
- As usual, special thanks to the Money Advice Service for making everything money related clear and easy to read. Their guides on credit are great.
- This guide from MoneySavingExpert provides some excellent additional information, help, and myth busting around credit.
- And of course there’s Which? who have put together some excellent guides for more advanced issues around credit if you need some more info.
And lastly, if you need financial assistance or advice with debt or any other issues, the Citizens Advice Bureau are always there to help those in need or in trouble financially.