Adverse credit or a limited credit history is something a lot of us struggle with. If you've ever tried to get a line of credit, you will know that your options are limited, because most companies will require a credit check. If your score isn't up to snuff, then that can mean two things: you can either be offered more expensive options (the lower the score, the higher the interest rate!), or you can be rejected altogether. Neither of those scenarios are desirable, obviously. To learn more about what constitutes bad credit, check out ClearScore. To avoid these situations, here are some top tips to avoid bad credit this year.
1. Pay Your Outstanding Debt
Outstanding debt can really drag your score down, and there are two things to note here, both related to the fact that you need to pay this money off:
Don't let it go to collections
A lot of people make the massive mistake of allowing their outstanding debt to go to collections. That includes previous loans, and even something as simple as an unpaid cellphone bill. Once it reaches the collection agency, you are flagged as an unreliable borrower/payer, so your credit score will suffer a massive hit. Don't dodge those phone calls from the lending company just because you've missed payments or you can't afford them. What you should do instead is reach out to them, which is what we're going to talk about next.
Talk to the companies and set up payments
Ok, so let's say you're behind on your payments for a loan. You've missed two months' worth of scheduled instalments and the phone's been ringing off the hook. The biggest mistake you can make is to ignore these calls. What you should do is the exact opposite - communicate with the company. Let them know what's going on and what you're struggling with. They are interested in getting their money back, so they will be 100% interested in working with you to rework a repayment plan that works for you and accommodates your budget. That will save you from the collection agency's kiss of death.
2. Pay Your Bills On Time
Another important point I want to raise is related to paying your bills; I cannot stress enough how important it is to make payments on time. That is going to keep your credit score high. In fact, you may want to look into setting up a direct debit to make these payments, so that you're sure that the payments are always being made on time, automatically, so there is no chance that you'll forget or overlook a bill, thus damaging your credit score.
3. Only Borrow What You Can Afford To Repay
This is common sense, but if you want to be able to make loan payments without issues, you need to make sure that you only borrow what you can afford to repay comfortably. Too many people go overboard with their loans and borrow a large amount that results in large monthly instalments that they ultimately can ill afford. An online tool like a loan calculator, such as the one made available by The Money Advice Service, can help you make sure that you aren't biting more than you can (financially) chew.
All in all, while an adverse credit score can be a real pain when it comes to getting approved for credit, there are ways to both work around it and avoid it altogether. There are several steps you can take to avoid damaging your credit or even improving a bad credit score you've already been saddled with. It only takes a bit of planning and exercising financial responsibility, and you, too, can enjoy the benefits and great deals you get with a good credit score.
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