There was a time when I paid very little attention to my credit score because I thought that it is not important.
This was the time when the ‘juiciest’ credit card deals out there were unattainable, when a loan secured against our house came with 7.5% interest rate and when all that came through my post box were bills.
I still don’t check my credit score regularly; this time I don’t check it because my credit score is a perfect 999, which I suppose is as high as one could get. Boring, I know; but very handy. Now, offers for cheap credit poor through the post box like cups of tea in Britain; now, we have one of the best deals on our mortgage that one could wish for.
How did I go from ‘a credit score reject’ to ‘a credit score aristocrat’?
First things first: I checked my credit score. And you should do this as well – knowledge is half the battle even if the truth may hurt. It is best to use the established companies and you can learn how to check your credit score on Forbes or Clear Score. The latter even offers free credit score checks forever.
Next, I dealt away with five misguided beliefs that were actually hurting my credit score.
These beliefs may be hurting your credit score as well.
Here they are:
#1. I never borrow money
Not borrowing money – be it for personal large items or business – is a lauded virtue. When it comes to your credit score, however, not having borrowed money means that you have no credit history and therefore your score is on the low side.
Not so. Remember that your credit score is a measure that tells lenders whether you are credit worthy or not. And you are credit worthy not when you’ve refrained from borrowing but when you have borrowed and returned the loan promptly.
#2. I have money in the bank
Not much help when it comes to your credit score. Lenders are not interested in the health of your bank account but in the health of your financial habits.
Whether you have money in the bank or not you should expect your credit score to be on the low side if you don’t have a healthy credit history; this is a record of borrowing that you have honored.
#3. I always pay cash
It is time to stop thinking that ‘cash is king’. This may have been the case in the past. Today we live in a world of electronic trail, hard evidence and important numbers.
Paying cash means that you are not leaving a trail of your spending habits that the credit score companies can pick up.
In the long run, it is better to learn to use cards; but use the responsibly. You don’t have to get mad on your credit card – buy only what you would buy anyway and pay it off every month without fail.
#4. I have a partner with bad credit score
Many believe that their partner’s credit score would affect their own; hence, they believe that there isn’t much to be done if you are with someone whose credit score is on the low side. Short of going off with someone else, of course, but this is a bit dramatic.
Now, it is not your partners credit score that could affect yours; it is whether or not you have joint credit. To the extent to which you keep your money affairs separate, you’ll be okay and your partner’s bad credit score is not going to affect you.
#5. A poor credit score is forever
This is easily the most destructive of all beliefs that hurt your credit score.
No, a poor credit score is not forever and there are a number of things that you can do to improve it. Here are thirteen straightforward and easy ideas to improve your credit score:
#1. Register to vote (this is also good for democracy).
#2. Get a mortgage.
#3. Have a credit card; use it and pay it in full (this way you’ll not end up in debt).
#4. Spread your debt. According to the professionals, what kills your credit score is not the total amount of your debt (though some lenders may look at that as well). What does it is whether your credit cards are maxed or not.
#5. Don’t close your credit cards; if you decide not to use them just don’t use them.
#6. Use different sources of credit.
#7. Don’t ever miss a payment.
#8. Pay all your bills on time.
#9. Don’t apply for more credit cards if you may be rejected.
#10. Don’t withdraw cash on credit cards.
#11. Don’t play around with payday loans.
#12. Reduce your debt.
#13. Pay for insurance in one annual payment (house and car).
Your credit score is an important marker of your credit worthiness: a good credit score could save you thousands per year by giving you cheaper access to borrowing, more favourable conditions of insurance, renting and even paying your utility bills.
Make sure that your credit score is the best it could be by changing these misguided beliefs and putting in action the ideas that would help you improve it.
How much is your credit score? Has this afforded you opportunities or prevented you from taking some?
photo credit: tiffanyrobbens Light painting 2 via photopin (license)
I think that secure loans are a must if you want to increase your credit score. You don’t agree?
@Benjamin: It will; still, why go for a secure loan when there are so many other options for borrowing that leave a trace.
Good article. I have two sons who are young adults and recently on their own. Convincing them to apply for a credit card to establish credit wasn’t easy. In fact I still am trying to convince one of my son’s that it is a “necessary evil.”
@Joanne: You’ve done much better than me :). I’m still fighting on and suspect that short of dragging them to a bank and staying with them while they apply there isn’t much to do.