Debt is expensive

Managing your credit score

Your credit score is the face of your financial wellbeing. It is how banks; finance companies and other credit providers decide whether or not they should lend you money. If you have a low credit score you will be considered high risk. Meaning you could be charged a higher interest rate to make up for the extra risk, or you may not be given a loan at all. Credit bureaus may calculate credit scores, but this doesn’t mean that it’s out of your control. You can ensure you tick off everything on this list to manage your debt.

Check your credit report

It will tell you your score and more importantly you can check for any mistakes. Make sure there are no late payments listed incorrectly and that the amount owed on each credit account is correct.

Pay off debt rather than moving it around

Do not pay off your debt by creating more debt. This sounds obvious, but we tend to think of specific institutions rather than of our debt as a whole, so it becomes easy to believe that we are paying it off, rather than adding to our problems. Do not apply for credit cards or open store accounts if you have existing debt.

Pay on time

Your payment record has a significant influence on your credit score. Even paying a few days late can influence your rating negatively. If you have to make regular payments, set up a debit order so you don’t risk forgetting about or missing a payment. Alternatively put a reminder in your diary or calendar.

Reduce what you owe

Use the credit report to list all your debts. Arrange these according to the interest rates charged on each. Try to pay off the ones with the highest interest rates first, while maintaining the minimum payments on your other accounts.

Tell creditors if you have a problem

Please tell your creditors or debt counsellors that you are struggling to make payment that month. We often think that telling our creditors or debt counsellors won’t make any difference, but this is not the case. Keeping your creditors informed of any difficulties can help to negotiate a payment schedule, allowing your score to improve over time.

Outstanding debts will stay on your record

Closing an account doesn’t make the payment history go away and it will still be reflected on your credit score. If an account is overdue, it will lower your score. Making any payments or paying it off completely won’t clear your credit record but will improve your credit score. Be aware that information about your payment profile can stay on your record for up to five years.

If this is the year that you want to buy your dream car or own your own home, then you need to get to work on polishing your credit score. The bottom line is to remember that your score is calculated based on information found in your credit report. This comprises your payment history, amounts owed and activity on an account, the age of your accounts – the older the better - judgements and defaults and enquiries about your credit worthiness. If you manage your report, your score will start to improve.

Make 2023 the year you get straight A's on this report!

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