Most people owe money to some extent but how you manage your debts is what counts on your credit file – anything you do wrong is recorded and creates your credit history – a file which lenders use when deciding if you represent a good risk to them and hence if they will lend you money.
When we talk about credit it’s not just loans and mortgages but also other lines of credit such as monthly insurance direct debits, mobile phone contracts etc.
There are many different reasons you may have a bad credit history which can make it difficult to borrow money when you need to.
The Golden Rules To Avoid A Bad Credit History
The golden rules to avoid a bad credit history are very simple:
- Don’t borrow more than you can comfortably afford to pay back
- Always pay your bills on time
Sometimes the above is easier said than done – an unexpected change in circumstances, the loss of a job, illness etc or even just the rising cost of living can cause outgoings to be higher than income and hence create problems. In these circumstances you should always contact your creditors immediately – don’t bury your head in the sand or the problems can escalate.
Understanding how your credit history is compiled will help you to avoid situations which may result in you earning a negative credit history. There are simple things you can do to keep your credit history clean Bad Credit History
- Pay your bills on time – avoid making late payments on any debts
- Do not miss payments or default on a debt – this includes your council tax
- Pay credit card bills off in full at the end of the month
- Do monitor your accounts for identity theft
- Make sure you fulfill financial contracts or commitments as failure to do so may be reported to credit reference agencies
- Try not to change address or job too frequently as this can affect your credit history
- If you have defaulted on any debts make sure you clean up your credit history as soon as possible by honouring your repayment schedules
- Avoid bankruptcy
Past credit history usually counts for 35 per cent of your credit score. It is not just having County Court Judgements (CCJs) or defaults on your credit report that has a negative impact. Missed and late payments will also dent your score. But whilst negative entries will stay on your credit file for 6 years, the impact of missed and late payments diminishes over time. If you have been making payments on time for at least the last 12 months those negative entries will begin to influence your score less.
Check Your Credit Report Now … It’s FREE!
It’s often a good idea to keep an eye on your credit file to make sure information registered is accurate and up to date.
If any data is incorrect then it could result in a credit application being rejected … simple things like forgetting to change your address on an old account, being linked with an ex spouse, a search that you did not authorise can all affect your file so check all is OK.
There are three main credit reference agencies in the UK:
Remember: the information being held on you is NOT private – YOU are allowed to see your report and check the information held for accuracy and to rectify anything that is incorrect.