14 December 2010

Improving Your Credit Rating

The other day I was looking at all of my debts and pondering over the fact that I’m never accepted for credit at banks and for things that require loans and thought to myself 'My credit must be terrible!’ I decided to check it out and learn more about the whole thing. I stumbled across a website called 'www.moneysavingexpert.com' which provides information on different topics in the financial world and educated myself a little more.

There are three main agencies [UK]. Experian, Equifax and Call-credit. They take into consideration payment records on credit cards, loans, phones and other accounts which require a regular payment. Late payments on accounts are recorded and anything which remains unpaid for 3 months is then recorded as a default. They then utilise this information to provide a score which determines how ‘creditworthy’ you are and of course, the lower your rating, the less likely you are to be accepted at banks for loans etc. These reports do not include other things such as car fines etc.

With Experian, for the first month you can gain access to your credit report for free: www.creditexpert.co.uk. The information documented shows you exactly the same figures lenders see when they try to analyze whether or not they believe your record warrants you having money granted. Although after the initial free trial period there is a monthly charge for utilising this service [no more than £10], in my opinion this counts toward a necessary expense in helping you to see where you are and what you need to do to reach the next step. I’m analysing my score every 3 months to see how much further I have to go. Although Experian, arguably, is the main company, using a website such as http://www.checkmyfile.com/ enables you to pay a monthly fee [no more than £10} and access the reports all three of the companies have on you, thus giving you a much clearer picture of where you are.

So I'm sure you’re wondering what my score is and I want you to come along on the journey with access to financial details. Here is a print-screen I captured for the purpose of this post which shows my current paltry rating lol:

After putting aside 10% off the top of each paycheque, I will throw extra cash at every single opportunity, even if it’s only £10, toward my debts to slowly clear it off. The timeline I have set for being debt free is 12 months and during this time I will also be getting richer simultaneously by sticking to the plan of 10% in, each month. Utilising this sort of strategy makes forcing myself to pay all of those debts a lot easier, because I know that the simultaneous plan will boost my confidence even if my current lifestyle has to be average.

Managing Credit

There are certain credit cards out there which have super high interest rates but can be used as credit builders. Rather than charging it to the hilt and making my financial problems a whole lot worse, I have decided that I will pay for some of my monthly expenses such as my phone bill for example, by using the credit card and paying the full amount back from my salary which would have originally gone towards the bill in the first place. They say the key is to simply put things on the card and pay back in full every month. Utilizing this strategy shows that you are able to manage credit and consequently the score goes up. The absolute best way to do this is via internet banking, which, in my opinion is the most wonderful thing since sliced bread for maintaining control of your money.

In another post, I have divulged greater detail of why managing debt is a vital skill in the rich toolbox.

High credit rating

For those who want to be rich, having an excellent credit rating is an absolutely mandatory requirement; the bank must be your friend! Part of the reason for the current financial crisis is due to the fact that credit was readily available and almost anybody could access it, even if their credit was pants! In hindsight however, lenders have become a lot stricter with their criteria, which means more rejections for credit. A low credit rating means misery when it comes to tools available for the investor, which I am rapidly working towards.

Having a higher credit rating also allows you to negotiate better interest payments on money borrowed. The reason why credit builder cards have such high interest rates are due to the fact that they may need to recoup costs if the borrower begins missing payments. A high credit rating however means that you have more power and subsequently reduce repayments a lot more.

Discipline Is The Key

The discipline required to pay off debts is astronomical, especially when it means that you have to deny yourself of certain pleasures. To reach yell0brickrd however, I have realized that discipline will always be mandatory, especially if I want to go further once I reach there. Continually increasing my knowledge and acting on the plans I have documented alone will help me to press forward!


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