Have you ever thought about your credit rating? If you’re under the age of 21, the answer is probably no. For everyone else, the phrases, ‘credit score,’ ‘credit check’ or ‘credit rating’ might have popped up on occasion. Once you become financially dependent, it is important to understand what a credit score is and how it could affect you. Don’t believe people who claim a credit score isn’t important. It certainly is, and it could put you in a dangerous financial situation. A bad credit score may be the reason why you fall into debt. It can stop you getting a property, being hired or even taking out a loan. To understand the issues, we first need to think about what a credit score is.
Credit Scores Explained
A credit score is completely unavoidable. Everyone who buys, borrows and saves has a credit score. A credit score is a history of how good you are at paying debts. So, if you are a couple of weeks late on your rent one month, that is going to affect your credit score. Or, if you have a debt on a credit card that is overdue, your score will take a knock. If you have never borrowed money, your credit score will be perfect. If you have borrowed money but you’ve always paid it back on time, your credit score is still going to be rosy. If you pay a loan back early, you can even boost a negative credit score.
You can find out your credit score with a quick check online. These can often be completed rapidly, as long as you provide accurate information. However, it can take a couple of days for a company to bounce back with the results. Particularly, if it is a free service. If you get the score back, and it is low, don’t panic immediately. As we will discuss further down, there are several reasons why this might have happened.
What Affects Your Credit Score
Anytime you borrow money, your credit score could be affected. Similarly, anytime you pay it back, your score might improve. Anyone who constantly uses a credit card may have a low credit score. However, it could also be quite high if they are great at paying the bills. This is one of the reasons why you should always do your best to pay your bills on time. If you don’t, your credit score will be affected. The issue is that you might not even realize it has taken a hit. You could be completely oblivious to a bad credit score until you need to borrow money. Most people assume this means a credit score is only important for people who borrow loans. However, this is not the case.
Who Uses Credit Checks
The short answer is everyone. Legally, a business owner can not ask you about your financial situation in a job interview. This could open up a discrimination lawsuit. However, there is nothing stopping them running a credit check. With the information provided on your resume, they’ll have everything they need. It is unlikely, yet possible that a credit check could stop you getting your dream job. Particularly, if that job involves some form of financial handling. You may also face issues with a credit check if you want to rent or buy property. These days landlords almost always run a credit check on applicants for a property. They want to make sure that the rent will be paid on time without delay. Especially, if working as a landlord is their primary source of income. A credit check will also affect your chances of getting a mortgage. It’s likely that the only mortgages available to you will be a bad credit mortgage. These come with extortionate levels of interests that are designed to be difficult to pay.
You should be starting to see how bad credit could negatively impact your life. Unfortunately, the issues we’ve already discussed are just the tip of the iceberg. Bad credit can stop you being awarded any loan. It will reduce your chances of getting funded for a business loan. It could stop you from being granted a personal loan for expenses. It may even affect your standing in society. Your credit score may not define who you are, but it can sure seem that way. Particularly, when with a low credit score, you’ll find expensive purchases more difficult.
The Problem With Credit Scores
You would be forgiven for thinking that the importance of credit scores means that they are one hundred percent reliable. Unfortunately, this is not a guarantee. Firstly, there is the issue of how credit scores are handled. Research credit scores online now and you’ll find hundreds of companies willing to run a credit check. Awesome, you say, at least the information is easy to access. Not so fast, because there is a good chance that the info you get from each company is different. From one company, your credit score might be fine. From another, it might be low. It all depends on the accuracy of their records, how up to date the info is and what information they can access.
Not all companies provide information for credit scores. This could be a positive or a negative. If you borrow from somewhere, pay back late, and they don’t share the info, no harm no foul. On the other hand, if you are trying to fix your credit score, a fast payment is fairly pointless. Particularly, if that particular business isn’t sharing the fact that you paid back on time. Credit checks are also not immune to computer errors as most checks are completed through a digital service. That’s why one day you might get a letter in the post claiming you owe a business thousands. It’s just an error, but it can be scary, particularly if that company is a loan shark.
Bad Credit: Solutions
So, let’s say you run a credit check online. Unfortunately, the results show that you have a bad credit score. After running some checks, you confirm the information is accurate. Perhaps you have a few outstanding debts on credit cards. Or maybe, you are quite forgetful with the rent. It doesn’t matter because we’ve already shown how this score could negatively impact your life. The question you now need to ask is how do you fix it. There are a few solutions to a bad credit score.
The first is to quickly pay back any money that you owe. If you have a number of outstanding debts, look for a debt consolidation service. You can then push all your debt into one easier to handle chunk. To fix a bad credit score, you do need to spend some time on the issue. You shouldn’t pay back a loan and then check your score, hoping its improved. It probably hasn’t and can avoid that disappointment. Remember, the history takes a while to update and gain any information accessible for credit checks. However, if you spend six months with no late payments, your credit score will improve.
You may also want to consider canceling any credit plans that you have. Credit cards are an example of this. Credit cards are a crutch. Even owning and using one could affect your credit score. Pay the money owed on it and cut it in half. That way, you won’t be tempted to use it to pay for something that you can’t afford.
Avoiding Bad Credit
Obviously, the easiest way to avoid a bad credit score is not to owe money. However, these days we will all owe money at some point. The trick is making sure you can pay the amount you owe back on time. Doing this, you’ll keep your credit score healthy.
One possibility is to use a personal loan to pay money owed. Online personal loans are easy to obtain, and you can use one to pay a debt. Doing this, you’ll have more time to get the money you need. The best part is that these loans are obtainable for people who do have bad credit scores. This is one exception where a bad credit score will not necessarily stop you getting a useful loan.
The other solution is budgeting. If you budget your money, theoretically, you should never be in a position where you don’t have money to pay a debt. You will always be able to pay what you owe on time. Creating a budget to live on is quite simple. You just need to think about your average monthly spendings and costs. Think about everything from the weekly shop to the gas bill. Add up that amount and compare it with your monthly income. The amount left can be used to pay for other luxuries and also for savings. Remember, by saving money, you’ll always have cash in your account for emergencies. Therefore, you will never be in the position of facing a late payment.
Bad credit can be a nightmare, and now it’s time to wake up. It’s so easy to fix your bad credit score and get your financial situation back on track. You just need to be willing and ready to take that first step.