Despite the fact that we may not necessarily be aware of it, each and every small financial mistake or slip-up we make in our lives is recorded. While they may often occur inadvertently, these incidents do not go away, but rather stand as a record against our good name, and accumulate until the time comes when they become an obstacle to our personal financial development.
While we may wish it otherwise, not many people have the good fortune of never needing to obtain loans or other forms of financing in their lives. Whether for home improvements, a new car, a richly deserved holiday, or a new house, we will inevitably need, at one time or another, to apply to various financial institutions in the hope that we will be granted the loan. These applications are often decided by assessment of your credit score, and this is when the various financial mistakes of your past begin to count against you.
There are so many positives to having a good credit score – and everyone would love to get a perfect credit score – if it was possible to do. So we all strive to get as close as we can to a perfect one. You can freely borrow money from most banks or financial institutions, and you may even be offered loans and credit cards without asking for them! Once you have earned it, keeping a good credit score should be a top priority.
If you are not so fortunate as to place highly on the credit score scale, then things can become more difficult from time to time. Buying a new home, gaining access to credit cards, and consolidating debt are all processes which become considerably more challenging, and occasionally even impossible, with a poor credit score. However, it is possible to climb back up the scale, but it takes considerable effort over a long time span.
Oftentimes, a job application will include a credit check, which many people to consider to be unfair. On the other hand, if the job in question includes some financial responsibilities to the company or customers, then it is important for the employer to know that you have a reliable financial record in your own right. In such situations, people with poor credit scores are often considered to be potentially unreliable, and can struggle to obtain a job.
In all probability, you will never see your credit score, but, nevertheless, you must take great care of it, and always be aware of it in the course of your lifetime. If you do not do so, you run the risk of your credit score working against you when you are most in need of financial help.
How To Work Your Way Back Up The Credit Score Scale
Falling to a low point on the credit score scale is not necessarily the end of your credit future. It is not the case that, once your credit score falls below a certain point, you are forever barred from credit cards, loans, and other forms of credit. If you have a low credit score and apply for one of these forms of credit, you must expect the application to be declined, or at least for the institution to include additional conditions such as a higher rate of interest, shorter repayment terms, or mandatory minimum initial deposits.
However, it’s not all bad news. We all make regrettable financial decisions at various points in our lives, but that fact does not mean that you will necessarily be punished for the rest of your life, and this is the reason that bad credit ratings can be salvaged. As long as you are ready to work at it, and to prove to businesses that you are a trustworthy customer – that you pay off or settle credit card debt to the best of your ability to get out of any financial holes you are in – it is possible to heal the damage.
What is required to do this? As much work as you are capable of! The first move is to make sure that you always meet your minimum payments, and, if at all possible, pay a bit more as well.
With a bad credit rating, but still being able to pay your bills, your next move might be to get a small loan, or buy something on credit, for the sole purpose of paying it back in accordance with the terms of the contract. This can prove that you now can fulfill financial commitments, which makes you a more attractive customer to companies who offer credit. If you happened to be a victim of credit card fraud, don’t worry. You should know that taking quick action to resolve any fraudulent activities can get rid of those credit blemishes quickly.
Working your way to having only half of your exiting level of debt should always be your primary goal. As you completely cleanse yourself of debt, your credit rating should ideally begin to be completely restored. unfortunately this is not always guaranteed. In certain severe cases, such as those who have declared bankruptcy, their credit rating may be affected for much longer periods.
It is much more difficult, and expensive, to pay off debt under pressure from creditors that it is to simply bay back the debt under the terms originally agreed. This should serve as a lesson to always keep up with your payments, so as to avoid being financially blackballed in the future.
Staying On Top Of The Credit Rating Scale
One of the most crucial parts of growing up is becoming able to independently keep control of your own finances. Sadly, this is not something most of us are taught at school or elsewhere, which has lead to the development of a whole generation of adults, many of whom have, on occasion, been in various types of financial difficulty, which has, in many cases, had knock on affects which have affected them years into the future in the form of a poor credit rating. You really must set your credit card spending habits straight and learn to use credit cards the right way.
As a result, those now learning to manage their own finances should take note of several important rules to be borne in mind at all times in matters relating to personal finance, despite the fact that they may not fully understand the rules importance until it is too late and, by breaking them, they discover they have fallen to a low rating on the credit rating scale.
First off, it is crucial to keep the amount of debt you have under control. This can only be done by having a rigid and realistic financial plan. There are many freely available online tools, or facilities through budget management consultants that can help in this process. A financial plan should allow for at least ten percent of your earnings to be set aside for savings, and a realistic amount reserved for living expenses each week. Before taking on any further loans or credit cards, it is important to be sure that the repayments can be accommodated by your financial plan. It is also important to minimize the term of repayment, as it is impossible to know what your financial position will be several years in the future.
If you can, you should arrange automatic bill payments. This means that the amounts due are automatically deducted from your account on a weekly and monthly basis. This will make sure that you do not risk missing repayment dates, and you won’t be hit with late payment penalties.
Finally, under no circumstances should you pay bills with credit. It is bad financial strategy to pay bills with credit, because it will force you to pay interest on your bills. This can easily mount up and get increasingly out of control. This is why many companies don’t accept credit card payments on their bills, so it makes sense to apply this rule to all of your other bills too.
Obeying these few simple rules will guarantee you are putting yourself in the best position to have a good financial future, and will also help make sure that your credit rating will be high enough to prevent any future problems
Steven Stanich (aka FPT Guy) is owner and author of Financial Planning Tips – where you can find sensible information on personal finance for the average Joe or Jane.