How To Improve Your Credit Score
On this blog, I advice that as much as possible to avoid debt, but life is such that at one point or another, you will need to borrow, either to take care of an emergency or to make an investment. Used well, credit could be as much of a wealth building tool as picking the right stocks and investments.
Internationally, there are ways to score your credit. For example, I would check my credit rating here before borrowing in the UK. You will find that both banks and credit rating agencies use similar strategies to assess credit worthiness, and there are certain small things you can do to ensure you are credit worthy. You want to make sure that your credit is as good as possible, especially because shrinking credit limits caused by the current financial crisis are silently hurting your credit score.
Savvy Sugar gives 13 tips to boost your credit worthiness, which include:
- Paying your bills on time
- Paying off credit card debt
- Maintaining as few bank accounts as possible
- Exercising caution when cancelling credit cards you’ve had for a long time. Cancelling erases your credit history
In addition to these, there are other small things you can do to maintain credit worthiness:
- Avoid accidental overdrafts: Most people (myself included) have fallen into the trap of an accidental overdraft, where you issue more checks than you have cash for in the bank. While most banks won’t bounce your check, they charge you an exorbitant fee for having a negative account balance, and if this happens consistently, it could damage your ability to borrow from the bank because it’s indicative of poor financial management skills.
- Keep to one bank: Credit worthiness is based more on your banking history, than on your current bank balance. It’s advisable that you don’t keep changing banks, as this means you won’t have a consistent banking history. No bank is perfect, but it’s good to find one that works for you early enough and sticking with it.
- Maintain a salary account: For the employed, instruct your employer to direct your paycheck to a single bank account, which remains as your salary account. Most loans are secured against your salary, and repayments are expected to come from the salary so it helps if a bank is able to tell your salary history. In addition, banks tend to trust direct transfers from an employer more than a salary check that you bank yourself.
If you do all the above, then you will find it easier to access credit from the bank when the need arises.
Have a financially responsible weekend!
