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If you have good credit then you should be proud of managing your borrowing well and building a good credit history. Yet, sometimes an unexpected emergency or a simple mistake can get in the way of how you maintain good credit.
Below we provide some suggestions on how to maintain positive credit. Including keeping up with repayments and checking your credit file regularly.
Managing your payments
Missed payments are a quick and easy way to damage your credit score. Ensure that you keep on top of when payments are due and try to schedule them each for the same date in the month if possible.
A missed payment can stay on your file for six years, although it is the most recent missed payments that do the most harm.
Set up direct debits so that the money comes from your bank account automatically. If you change any of your contact details or your bank details then let lenders and suppliers know immediately.
According to Experian 1 in 10 people have at least one missed credit payment on their credit file, don’t be one of them.
When making repayments on your credit cards always pay more than the minimum amount. Try and repay your balance in full every month to avoid paying interest and never exceed your credit limit.
It is best to treat your credit card more like a debit card. Before making a purchase on it ensure that you will have the funds to pay the balance when your next statement comes in, or as soon as you possibly can.
Don’t max out your credit
Even if you are repaying the balance in full each month, try not to spend too much of your available balance. Maxing out your credit doesn’t look good to lenders as it appears that you are overstretching yourself.
If the temptation of a credit card is too much, and it is for many people, then pay off the account and close it. Use savings as a safety net instead.
Start saving to maintain good credit
You never know when you might need to access emergency cash. Setting up a savings account will provide a buffer should the worst happen.
It will mean not having to rely on credit and taking on an unmanageable amount of debt that could potentially damage your credit score.
How much to save
Ideally, try to save the equivalent of at least three month’s salary. Look for a high-interest current or savings account so that you maximise your savings pot.
Shop around for the best deals online, remember that they are not always with your existing bank.
Pay off debts first
If you have existing debt then pay it off before you start saving. The interest rates on debt are usually much higher than the interest rates for saving.
Keep track of your spending
Keeping track of your spending is an effective way to maintain good credit as it means that you will be less likely to spend more than you have coming in.
Overspending means that you might have to rely on credit at the end of the month, which could get you into a dangerous debt spiral.
Every few months sit down and review your current spending. Categorise your payments to analyse areas that you might be overspending in, or where you can make cutbacks. These funds can be used for saving, or paying back existing debts.
Adopt a more minimal lifestyle
A minimal lifestyle is not easy to achieve in our consumer society. The key to maintaining good credit is to live within your means. This means not buying into the idea that you must have the newest gadget to keep up, or the most expensive face cream to look good.
Replace things that need to be replaced and treat yourself to what is truly important to you. Remember that you have worked hard to achieve financial security and peace of mind.
We all want to live in a level of comfort but mindlessly accumulating things won’t make you happy, especially if they drag you into debt.
Keep a 30-day list
If you see something that you like online or in the shops then don’t buy it. Instead, write it down. Review your list after 30 days and if you still want it then go ahead and make the purchase.
Lots of people find themselves with bad credit as a result of impulse buying. You see an item in the sale, feel like you need it and pop it on your credit card or use money that was assigned to something else.
You will make a more rational decision by taking some time to decide if you really want or need it, not pressured by a pushy sales assistant or ‘flash sale.’
Use credit wisely
Don’t make too many applications at once
Having good credit means it is likely that you get better rates on loans and credit cards. If you need to borrow for an essential item like home improvements then don’t make too many applications where the lenders do a ‘hard search.’
This type of search leaves a mark on your credit file and too many searches in a short space of time does not look good to other lenders. It could end up harming your file and seeing applications refused.
Instead, opt for a ‘soft search’. Many lenders offer this as a way to check your eligibility and likelihood of being accepted, without making a formal application. It will leave no print on your file and should be used when you are shopping around for the best deals.
Check your credit file regularly
It is important that you check your credit file at least once a year. If you are going to make an application for a mortgage or loan then check your file first with at least one credit reference agency. Ideally, use all three. These are Equifax, Experian and Callcredit.
You might assume that your file is good because it was the last time you checked. Remember that mistakes can appear at any time and these have the potential to impact your score.
Signs of mistakes and fraud
Many people have been turned down for borrowing in the past. Because of mistakes or fraudulent activity that has shown up on their file and impacted their credit score.
What to look for:
- Lines of credit that you don’t recognise
- Addresses that you have never lived at
- Applications that you don’t recognise
If you see any of the above then it is possible that there has been a mix-up on your file or someone has used your identity to apply for credit.
Mistakes also emerge when items that are meant to fall off your file after a set number of years remain there. A default should usually fall off after six years and a bankruptcy after 10 years.
What to do
If you suspect that there is a mistake on your file then contact the credit reference agency and the lender. If you are not satisfied with their response then complain to the Financial Ombudsman Service.
Lenders like stability
Moving house frequently or changing jobs too often can appear risky in the eyes of a lender. If you are planning to take out a mortgage or apply for a large loan then remember that stability is key.
Your financial associations
Sharing a joint bank account or joint mortgage with someone with bad credit will affect your good score. Before applying for anything jointly you should take the necessary steps to rebuild the other person’s credit.
Sharing a home or getting married will not link your credit scores but applying for joint credit will.
Make financial goals
Having good credit is a great achievement but you should keep aiming higher. Could you improve your score to excellent? Are you saving as much as you could be? Will you have enough money to retire on?
We don’t mean setting goals once a year in January. Setting short and long terms goals and reviewing them every few months will mean that you will be less likely to slide back into bad credit.
You might just achieve more than you ever thought possible.