Avoiding The Bad Credit Pitfalls
Bad credit can wreck your financial prospects. Actions you take years before your desired house, car or other purchase can come back to haunt you, given the long memories of lenders and credit companies.
If you’re not clued up on your credit report, that’s fine. Many people aren’t, and they can seem complicated. Clearing your old debt is the first step to repairing your report, but there are other options to take - and particular pitfalls to look out for in the future.
Repairing Your Score
When you’re embarking on the journey to clearing up your credit score, it’s always helpful to take a look at your report and see if anything can be remedied quickly. Look for items you don’t recognise, or mistakes made by companies you know you have been financially diligent with. Credit companies are obligated by legislation to sort their mess out. If you have an extensive history or don’t feel confident in assessing it yourself, industry assessors Credit Repair Companies (www.creditrepaircompanies.com) have recommended the use of credit repair companies for the professional edge.
Retail Store Cards
Whilst retail store cards aren’t all bad, and frequent shoppers can benefit from the use of them, it has been reported that, occasionally, retailers have been misleading. The effect is you pick up a credit card that doesn’t seem as scary because of the terminology surrounding it. Make sure you know exactly what you’re signing up for when you pick up a store card.
Keeping A Credit Balance
A frequently debunked myth of building a credit score is the alleged necessity of having a credit balance - essentially that you’ll always need to pay credit to get those credit score points. This is not true, and the best way to build credit in this fashion is to use a card as your regular cash card and then pay it off in full before any interest can accrue.
Having A High Utilization Ratio
Another myth is that you should keep a high ratio on your card in order to build your score. The opposite is true, and your credit score will drop if you use a high percentage of your card, that would suggest you rely on credit. The opposite is true, and most companies recommend that you stay below 20-25% utilisation at most. If you’re unsure on percentages, there are plenty of good quality calculator apps.
This is a good habit anyway, allowing you keep the rest of the balance for eventualities like large, uninsurable purchases and rainy days.
Repairing your credit score requires time, patience, and perhaps professional hope. Staying out of the hole is easier - just building good habits and an understanding of the commitments you’re moving towards.