Romano’s Guide

The credit card market is awash with various deals; many easy to apply for and even easier to use. However, managing credit is a delicate balance; let your spending get out of control and you could face big money troubles. On the other hand, it’s also important to spend enough to improve your credit score. Your score is a lender’s estimate of how good a borrower you’ll be and can have a big influence when it comes to borrowing money. 

More and more millennials are making progress in raising their credit scores. But qualifying for affordable borrowing rates is still a tough challenge. Without a good rating, many are facing financial barriers in progressing with life goals.

Here are some ways consumers can keep their finances and credit score in a healthy state, as well as a breakdown of the ins and out of credit scores:

 How a credit score is worked out – Every time you apply for a credit-related product like a loan or a mortgage, you are assessed on your credit score. Your credit score can vary between providers and companies, so what you do have, is a credit history. This can then be interpreted by all lenders and rating agencies however they see fit.
Your credit history is a record of all that you’ve borrowed, so it’s important to make sure that it’s accurate before applying for credit-related products. Errors can lead to rejection and will be visible to all providers, causing your credit history to take a hit. 

 Providers expect you to have proof of previous repayments, so any history of borrowing is crucial to present. Before applying to certain loans such as a mortgage, you may need to build a little bit of credit history before you apply. This is where balancing your spending and planning for future costs can help.  Treat your credit card usage as you would a budget for your own money, bearing in mind that it can be easier to pay off smaller amounts than large – credit cards aren’t income replacements. However, you can use your card fairly regularly, especially if making the repayments, as this will help boost your overall score.  

Things that count against a score – Many things can affect your score.  They vary from a poor history of repayments to too much debt.  Also, if you’ve applied too many times for a credit card or a mortgage, this can ring alarm bells. The lender will investigate why you’ve been rejected previously.

Little things like switching energy providers could also have an impact. Although it seems like good money management by switching, every time you do the electricity and gas companies carry out a hard credit check. Every hard check is a potential mark against your name. Reduce the amount of time you switch, and you could save yourself credit rejection in the future.

How to make your credit score better:
There are many simple ways to improve your score.  These include:

• Make payments on time
  As previously suggested, payment history plays a large part in your credit score.  One missed bill can have an impact, and unpaid balances can be subject to late payment fees and further financial penalties.

• Maintain a low credit use ratio
  After payment history, your credit utilisation ratio is a big contributor to your credit score.  This is the proportion of how much credit you have available, to how much you are using.  Following the credit rule of never using more than 30% of your credit limit, could be a good way of maintaining your score.

• Spend with your budget in mind
  A credit card is painless to use and often rewards regular spenders with benefits.  Having one can influence all your spending habits, but this can often lead to uncontrolled spending that leads to a mountain of interest-incurring debt.  To avoid digging yourself into debt, use a credit card with a firm budget in mind.