Your personal credit score is one of the most important things you should know about yourself. Anyone with a poor credit history will find it increasingly difficult to purchase large new items such as a house or a car, unless they have saved the money in cash. The keys to improving your credit score are simple, but may take some time to produce the results you need.
Credit companies look at several things when compiling an individual’s credit score. Some are beyond many people’s control to influence, but other aspects are very simple to work on. Your credit score is partly based on your previous credit history and how well you have met your obligations.
You cannot undo the past, but you can improve your own future. If you have defaulted on payments in the past, you must be sure to only take on credit that you can afford to repay in the future. Over-stretching your finances, or living right up to your last penny every month is a dangerous way to improve your credit score.
Simply having a bank account can help you on your way to great credit. A good approach is to have two or three accounts that you use for different purposes. Your main account should have your wages and any other payments from others paid into it. From here you should transfer your monthly bill payments to a separate account, where the payments can be made by direct debit and you do not have to worry about making a late payment.
You should also have a savings account, that has no overdraft facility and preferably a higher rate of interest. Deposit a small amount in here each month and forget about it. With the remainder of your monthly money, you may want to fund a PayPal account to allow you to make small luxury purchases on-line. This leaves you with the money you will use for every day expenses such as food and transport.
By setting up a variety of bank accounts, managing each one will help to raise your credit score. It may seem strange, but managing a bank account that has a small overdraft facility will improve your credit score more quickly than having a single bank account with no overdraft. Banks like to see you build up a reputation for careful money management with them before they agree to lend you more money.
It is possible to live without a credit card, but as with many things, if you want credit you will almost certainly need to have some to start with. Start by applying for a very basic credit card, with a very low limit. The limit should be around a third of your monthly income.
Make sure you use the credit card for a few small purchases each month. Then make sure that you pay off the balance in full before the due date each month. Building up a history of good credit management in this way over a period of 6-12 months will improve a good credit score to a great one.
After an initial period, your credit card company is likely to increase your credit limit. It may be tempting to spend more at this point, but you should stick to your routine of small purchases that you pay off at the end of each month. Having great credit available to you does not mean you have to use it. Think of it more as a safety net for when you need to replace large items such as a stove or washing machine.
The keys to great credit are the ability to manage the money you already have, and being restraint when offered more. Always pay off what you owe as quickly as possible and do not borrow above your ability to meet the repayments.