Borrowers Beware: Valuing your Credit Score

By: Elisha Burberry

Past generations were taught to live within their means. Good advice for the day but now with so many finance choices available including loans and credit cards it is hard not to take advantage, especially when extra funds are needed. Done sensibly however, taking out a loan will not reflect badly on your credit history and can be useful when you're in need of funds. However, there are reasons to sit and have a think before going into an overdraft or taking out a loan as these actions will become part of your credit history.

A credit score is a rating of your financial history and is held by agencies such as Equifax and Experian. The score is a number between 1 and 1,000 with 1,000 being the best. The number is used by banks or other agencies when an application for a loan or credit card is made. If you have applied for one of these and were rejected, a low score is most likely the reason. You can order your credit report from Experian as people are entitled to know their score.

So, what contributes to credit score ratings? Bad scores occur when a person is loaned money but has not repaid it on time. This rule extends to credit cards, loans and even bank account overdrafts. Violators may be subject to late fees and interest rates and these actions can reflect badly on credit scores. Mobile phone contracts and any other bills that require regular payment can affect scores if they are not paid promptly as well.

It might seem like there is no escape from a bad score especially to those at university who are strapped for cash, but it is simple to keep your score clean. Firstly, try to follow grandfather's advice - live within your means. This does not mean never get a credit card, take out an overdraft, or apply for a personal loan, but it does mean that you should know how you're going to be able to repay it. Ironically, if credit is never used, you won't have a credit history which will result in a low score! The key is balance and the equation is simple; if you choose to borrow, you must pay back - on time.

Do not miss payments even if you can only pay the minimum which will help you to protect your credit. Set up direct debits to all bills with at least the minimum payment which allows you to pay more if you can and if you use credit cards, try to pay back the full amount each month..

If you do get into trouble and have lenders contacting you for payment, do not dismiss their calls. Keep in touch with lenders even if you can not make payments. Financial difficulty can be emotionally straining but giving up and filing for bankruptcy is not the answer. Many people see this as a get out clause but it is nothing but. Filing for bankruptcy will stay on your credit score for up to 15 years and it will make applying for a personal loan, mortgage, or credit card very difficult.

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