What do you associate with debt or bad credit? Irresponsible borrowing? Greed? Accidental expenditure? There are a wealth of emotions and behaviours associated with poor credit ratings. Some of these associations may be deserved, while some are the unfortunate result of misunderstanding the 'types' of people and lifestyles that go hand-in-hand with bad debt.
The truth is, anyone can end up with a poor credit rating. It may happen gradually over time but it can also happen overnight. This is even more pertinent in today's economic climate of high unemployment and rising costs of living. According to the Office of National Statistics , the number of people out of work rose by 15,000 in the first three months of 2013, while the annual rate of inflation (i.e. the rise in the prices of goods and services we buy) grew to 3.3% in March 2013. (This figure of 3.3% refers to the Retail Prices Index inflation, which includes housing costs.)
If we are to avoid bad credit on a personal level, or help ourselves out of our own difficult financial situation, it is important to understand that even small everyday measures can have a significant impact in the long run.
Below, we take a look at some initial steps that may help you repair a low credit rating, or help you avoid bad credit in the first place.
Bad credit: know the truth behind the myths
The first hurdle to overcome is to understand what can – as well as what can't – affect your credit rating in the first place. The financial world can seem a tough one to get your head around at first. This is made all the more difficult by the high number of often incorrectly cited myths surrounding the topic of credit histories and scores.
The most common misunderstanding is that there is a single credit blacklist and once you're on it, it is impossible to get credit. This myth is all the more frustrating considering responsible borrowing is one of the most common suggestions for getting your finances back in shape. It is important to understand there is no credit blacklist. Different credit providers accept applicants that meet different criteria; just because you have been refused by one, this doesn't necessarily mean you will be refused by another.
Unfortunately, this isn't the only credit myth that has people flummoxed. Often, people incorrectly make assumptions about the influence other people can have on your own credit rating, or think it is easier to get credit if you have never borrowed.
If you're unsure about anything to do with the basics of borrowing, there are a number of online resources that provide clear and easy to understand information, including the Citizens Advice Bureau and the Money Advice Service.
Create a monthly household budget planner
Once you've got a grasp on the basics of credit and credit ratings as a whole, it's time to take a closer look at your own finances. Whether you're looking for ways to save money to make it easier to meet existing credit repayments, or are just looking to save a few pounds here and there, a budget planner is a vital tool.
Again, you'll find numerous budget calculators online (such as the one from the Money Advice Service) or there is always the trusty pen and paper. However you choose to do it, it is important to be as accurate as possible in terms of both your income and outgoings. Don't forget to take income tax into consideration, as well as other sources of income such as benefits and pensions when completing your calculations.
Creating a comprehensive planner will help you see where you are currently spending your money each month, and help highlight areas where savings can be made. Small tweaks to your current lifestyle (for example, finding a utility company offering the best price or finding a savings account that offers the best interest) can mean the difference between spending within your means and getting into debt.
Improving your credit score
The sections above offered tips which are largely applicable to anyone thinking about their finances, regardless of their credit situation. However, there are a number of measures that can help people specifically looking to improve upon a bad credit rating. Again, you will find ample online resources offering such advice, for example this video slideshow from Vanquis bank. Tips include the following:
- Check your credit reference file to find out why your credit score is bad
- Always provide true information when applying for credit
- Do not apply for too many credit cards in a short space of time
- Make sure you are on the electoral register at your current address
Bad credit information resources
As has been mentioned, there are a large number of websites offering information about credit ratings and debt. Take a look at the sites below if you are unsure where to start.
Who to follow for credit advice
If you are an active Twitter user, there are plenty of financial experts and organisations who regularly tweet about all things money. Below are a few suggestions of Twitter accounts for you to follow.
@MoneySavingExp –Twitter account linked to Moneysavingexpert.com. Visit the Twitter page to find the various other accounts associated with the site, such as founder Martin Lewis
@YourMoneyAdvice – official Twitter feed of the Money Advice Service
@money2themasses – Twitter account of Damien Fahy, author of Moneytothemasses.com
@StepChange – Twitter account of StepChange debt charity (formerly CCCS)