Advice and Tips // 31 March 2016
Your credit history includes a list of every aspect of your financial life. It’s an important list of your financial history that will be analysed if you ever need to apply for finance or perhaps take out a contract. It essentially includes every credit card account you have opened and any loans or finance you have taken out. It also includes a history of any debt repayments you may have had.
Causes of a poor credit score
There are a lot of factors involved which may affect your credit score. This includes whether you have paid on time or if you have been late, been filed for bankruptcy or been foreclosed. If you have been ordered by a judge in court to repay an outstanding loan or debt, this will affect your credit score and the information will then stay on your credit history.
Your credit history is important data for lenders, as they will look at your history in order to assess your ability to pay back any credit. If you are having financial difficulties, you will be a higher risk in the eyes of the lender and this could then stop them from accepting an application.
How do I establish a good credit history?
If you want a good credit history, you need to make sure that you are starting small. So if you don’t have a lot of credit, then by only opening up one credit card or taking out a small loan will help get you started at a manageable size.
Credit accounts that report your repayment activity and your borrowing will count towards your credit history. Here are a few ways of making sure you establish a good credit history.
1. Make sure you pay off your credit in full at the end of each month. So when you receive your card, attempt to pay the balance in full when you get your statement. By doing this, you are proving to any potential lenders that you are taking responsibility.
2. Building a strong solid credit history can be done if you are paying on time. If you pay your bills on time at the end of each month, you are showing the lender that you have got enough cash flow to cover your expenses. Paying late only means that your lender will inform your late payment to the credit bureaus, resulting in damage to credit history and a lower credit score.
3. If you are having problems getting accepted for credit, request to see your credit report. If you know what information is being reported, you are able to build a positive credit history. If there are any mistakes in your report, this could damage your credit score.
4. Get a credit line increase. Once you’ve got your first credit card and you’ve had it from six months to a year, call the credit card company and ask them to increase the limit of your credit. You want to raise the credit limit on your card and not the amount of debt you owe. What this does, is help you carry a balance which will then raise your limit, helping you keep your debt-to-credit ratio down.
5. Your credit history will be critical when it is time to spend money on cars or homes. This then means that a 1% difference in interest on a loan could either cost you or save you a lot of money.
Remembering to do the above will help you establish a good credit history without accumulating a lot of debt.