“Your credit record is your financial ‘good name'. It's your reputation in the eyes of credit- and other service providers and it's one of the most important considerations when deciding if they should lend you money.”

Credit can be useful. Whether you use it to get you through a few rainy days when you know the money will come in soon, to help you purchase a valuable asset or build a business; it can come in handy by allowing you to afford things faster when you need them. In order to be able to take advantage of this opportunity, you will need a good credit score. Your rating with the credit bureau is based on your credit history. If you do not have a good history or simply wish to improve your existing one in order to qualify for more credit, there are a few things you can do.

Create A Credit Line

While having too much debt is obviously bad for your record, having had too little will also count against you. The duration of your credit history (how long you've been a credit consumer) can make up to 15 percent of your credit score. If you have no, or a very short, history of credit then credit providers won't be able to trust that your credit score is an accurate reflection of your credit worthiness.

  • If you do not have a credit history, credit providers do not know if you are good at paying back, therefore they are reluctant to lend you any money.
  • Although it is always ideal and recommended to pay for goods in cash, you can take advantage of low- or no-interest credit options in order to build up your score.

Pay On Time

  • Make sure that your debts are paid on time.
  • Talk to your creditors in the event that you are unable to make a payment. Most creditors are willing to negotiate payment plans if you fall behind and making these arrangements may not negatively affect your rating. However, keeping quiet makes it appear like you do not plan to pay and is a red flag for creditors.
  • Remember, it doesn't matter that you can pay; you must pay on time.

Pay High Interest Debts Off First

  • Save money by paying your high interest debts off first.
  • This is also an effective method of managing your debts.

Nothing shows you can handle being in debt more than regularly making payments on your credit cards and keeping their balances down.

Protect Yourself Against Fraud

  • Identity theft could ruin your credit rating.
  • Safeguard against it by using strong passwords to access sensitive online information.
  • Check your credit report for any inaccuracies.
  • Report any lost or stolen cards as soon as possible.

Keep Debts Low

  • Close any accounts and cancel credit cards that are not in use.
  • Too much credit may make you appear as a risk to lenders so it is not necessary to keep credit which you do not need.

Don’t Take Out To Much Debt

Never max out your credit cards and try to keep the outstanding balance below half of your credit limit. The lower your balance in relation to your credit limit, the better it is for your credit score. Avoid taking on more credit while you are paying off other debts. Try and cut what you spend on debt each month to less than 30%.

It Takes Time To Improve Credit Scores

If you have negative information on your credit report, eg such as late payments, too many inquiries, you should aim to pay your bills and wait. Time is your ally in improving your credit score.

Keep A Wide Debt-Asset Ratio

  • The debt-asset ratio is calculated by valuing your debts against your assets.
  • The trick is to keep your assets higher than your debts and to create a wide difference between the two values.
  • This proves to creditors that you can maintain a healthy balance between your assets and liabilities.

Check your Spouse’s Rating

Creditors also have access to your spouse's credit record and this could impact negatively on yours if it's very bad.

General Tips

  • Pay off your debts as soon as you can
  • Avoid over extending yourself
  • Try not to apply for credit unnecessarily

Credit applications will show on your credit report (as inquiries) indicating to lenders that you may be taking out new debt. It may be to your advantage to use the credit your already have to prove your ongoing ability to manage credit responsibly.

Be Responsible

  • Keep track of spending and charges.
  • Make sure that any additional debts fit into your existing budget.
  • Failing to understand your personal financial situation may lead to a series of bad debts so rather make sure you remain on top of things.
  • See each debt as an opportunity to prove yourself to credit providers and respect the service provided by sticking to your end of the agreement.

Credit can be a stressful matter for those who do not know how to use it correctly. However, if you manage your finances wisely, you’ll realise that good credit creates an opportunity for you to benefit in the long run.

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