If you want to be accepted for a personal loan, credit card, overdraft, mortgage, or various other forms of credit within the UK, you’ll need to have a good history of credit, and a great credit score. A credit score is the category or number that you can be associated with in terms of your financial history. It helps to define whether you’re a good or bad credit risk and whether you should be given a good deal on the money you want to borrow.
Your credit score will help to determine how much a lender is willing to give you in terms of credit, and whether you will be able to borrow from them in the first place. Additionally, your credit score will also determine how much interest you are charged. Your credit score will be based partially on your history in the world of credit, which refers to how badly or well you have managed your debts, how much money you have borrowed in the past, and so on.
You will need to have some kind of credit history before you can borrow money at a good rate.
Building your Credit History
There are various ways that you can begin to build your credit history. For example, one option is to make sure that you’re enrolled on the electoral roll, as this helps to improve your credit rating. Additionally, you can think about opening and managing your own bank account in the United Kingdom. Setting up and regularly using your own current account will help you to start developing your personal credit history if you make sure that you run your account as responsibly as possible. Running a current account responsibly simply means that you make sure that you have enough money in the account to cover the payments that you want to make.
The more you run your current account responsibly, the more you will demonstrate that you have an ongoing and responsible relationship with your bank. Some banks offer customers the chance to use an interest free overdraft in their account for the first year or so. This can be a great way for you to apply for a small amount of credit if you only need to borrow for a couple of days. However, it’s important to make sure that you can pay off whatever money you borrow before the interest-free period ends. You will need to make this payment no matter how small the amount you borrow.
Remember, managing your current account responsibly will help you to improve your credit rating regardless of whether you have an overdraft.
Other Ways to Improve your Credit Score
Setting up some regular direct debits can be another way to improve your credit score. Your direct debits are simply things that can be used to pay regular bills that you need to give out money for each month, such as electricity, or gas. These can also be used for broadband and car payments. Not only will direct debits help you to improve your credit rating, but some companies also offer discounts when you choose to pay by direct debit too.
Most importantly, remember that the most important way to build your credit history in a positive way is to make sure that whenever you have to pay money for bills or debts, you do so according to the rules and regulations that you have agreed to with your bank or lender. Improving your credit rating is all about showing other people that you are responsible with your money. If you can pay all of the bills that you have on time, this will show that you are capable of using your money properly and following the rules that are given to you.
Additionally, if you end up missing any payments, or giving payments late, then this can lead to huge problems in terms of interest and other issues. If your lender is forced to take you to court to get the money that they’re owed, then you will end up with a CCJ or county court judgement. This will remain on your file for a period of six years.
Before you Borrow Credit
There are various things to think about before you borrow credit. Once you have built up a history for around six months or so, you will be able to apply for credit. However, remember that you should take time to think about which financial products are best to you and which companies are offering the best deals. Additionally, before you fill out any forms to apply for credit make sure that you have the right information available including your building society and bank account details, and your employer’s address and name. You will also need details of all your current credit commitments, and a list of the money that you have going out and coming into your account each month.