Gone are the days when we all had a clean slate with zero credit history. Today, more than anything else, it’s your credit history that can determine what house you get, what vehicle you drive, and your lifestyle.
As soon as we become familiar with the concept of bank accounts and credit cards, we unconsciously step in either a good or bad direction in terms of our credit score.
However, avoiding bad credit is not as hard as you think it is. Just a few right decisions and you’re already on your way there. Here’s how you can start.
Improve Your Money Management Skills
The first step to avoiding bad credit is to improve your money management skills. While bad credit sounds like one thing, it can lead to a whole bunch of other issues such as difficulty in landing a loan and accumulating debt.
Therefore, knowing how much to spend plays a huge role when it comes to managing your money. It’s a skill that can help you stay out of debt, and eventually achieve your financial goals.
Don’t Delay Paying Your Bills
What starts off as delayed bill payments often ends in more complicated issues such as struggling to get loans with bad credit, refinancing, and saving money for daily expenses. Your repayment history is one of the important factors that affects your credit score.
If you delay payments for a certain period of time, it can negatively impact your credit score. As a consequence, it may lead to things like repossession (in case of a vehicle), foreclosure (in case of a mortgage), and charge-offs.
Avoid Building Debt
After delayed payments, the biggest factor that can influence your credit score is how much debt you have. Credit scores determine a lot of things, from your credit limits and balances to the amount of debt you currently hold.
Your debt also has an impact on your payment habits. The more debt you have, the harder it is to make monthly payments on time. Therefore, stay clear of debt by making regular payments and keeping your credit card balances low.
Keep Your Credit Applications in Check
The moment you make a loan or credit application, it goes into your credit report as an ‘inquiry’. Too many inquiries in a short period of time can cause a drop in your score. As a result, when you land loans with bad credit, they might come with a higher interest rate.
Even though lenders like Jacaranda Finance provide loans even with a bad credit score, it’s important to keep prioritising on improving your score.
Additionally, more inquiries can mean more credit card applications, and more applications mean many credit cards. Hence, the more credit cards you have, the more payments you’ll have to keep up with.
Set Controls Earlier
Most people make the mistake of resorting to credit cards when they’re low on money. Not only can it fuel irresponsible spending behaviour but also affect your savings in the long run. Hence, if your financial situation is not the most stable, either learn to live within the means you have or bring in additional income.
Save, Save and Save
While saving or not saving money does not have a direct impact on your credit score, a bad score can have an impact on your savings. If you’re wondering how, consider the following example. When you land a loan with a bad score, it might not come with the best of terms either. In fact, it might come with a high interest rate per month, which means you’ll be paying much more than what you would have paid with a low rate. As a result, savings are hard to keep up with.
However, it doesn’t discredit the practice of saving money. If anything, having enough savings will only help you avoid problems that may lead to a bad score. For instance, if there’s a large unexpected expense at hand, your savings can help you pay for it instead of the amount accumulating over time.
Avoid Taking on Unnecessary Expenses
In the end, it goes without saying, the more unnecessary expenses you take on, the more you’ll spend and the less you’ll be left with, to pay for necessary expenses. Your ability to pay can see a serious setback if you don’t have enough funds in the first place. Always keep your monthly budget in mind because something as trivial as a new subscription can get you in a difficult position later on.