Having bad credit on your credit file can affect your chances of gaining credit especially when looking for a loan. High street lenders will have strict lending criteria meaning they will require the applicant to have an almost immaculate credit history. This leaves those with bad credit with no option but to use sub-prime lenders, these will not have such strict applicant criteria however they can come with high rates of interest. I've compiled a few tips on how you can avoid bad credit:
Create a Budget- This will ensure that you never overspend or run out of money towards the end of the month. Firstly calculate your surplus income, do this by subtracting your total out-goings from total income. Out-goings include rent costs, utilities, direct debits and subscriptions, when calculating income take into account both your basic salary along with any benefits or other sources of income you may be receiving. Always set aside a specific amount of your surplus income in order cover for any unexpected emergencies such as a broken down cars or household appliances.
Prioritize spending- Always ensure that the bills and direct debits are the first thing you pay, one way of doing this is to set them up on the day of, or a few days after payday. Having direct debits coming out towards the end of the working month may mean that you have insufficient funds in your account. If a direct debit 'bounces' this will go down as a missed payment on your credit file, a number of missed payments may lead to defaults which will further damage both your credit score and your chances of being approved for credit in the future.
Keep credit commitments to a minimum (when possible)- Always avoid small unnecessary subscriptions such as magazines or newspapers, these may only cost a small amount of money each month, but they are easy to forget about and can have negative effects on your credit file if payments are consistently missed. The more credit commitments you have the harder managing your finances becomes. Try to avoid committing to 12 month contracts such as gym memberships if you are unlikely to use them on a regular basis, instead use 1 month trials when possible. Also try to avoid having multiple store cards, these can make it very hard to gauge the amount you are spending throughout the course of the month.
Contact creditors about a payment plan- This is only relevant if you feel you are unlikely to be able to make a payment on time. Always contact the provider a number of days in advance, most creditors will be very reasonable and will either allow you to delay payment for a day or two or organise a payment plan. Failing to alert creditors will lead to missed payments, consistent missed payments will lead to defaults which will be reported to credit reference agencies again, damaging your chances of being approved for finance in the future.
Check your credit score- When talking about credit score ignorance is not bliss! Always try to get a free credit report once a year while this is not a direct way of avoiding bad credit it will help to unearth reasons why you may have been refused credit in the form of loans, credit or store cards.
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