In the current economic times having a reasonable – or better – credit score is very important because there will inevitably be times when we need to resort to borrowing to get by. Without a good credit report that may be nigh well impossible, leaving you having to source funding from more expensive sources such as payday lenders or other more costly funding options.
On the other side of the coin, if you have a good credit history it will help you get access to better mortgage and loan deals and could even be helpful when you are applying for a new job. So, you see, the importance of having a good credit report and score is hard to overstate in modern life.
It can however be easier said than done. When it comes to poor credit scores one of the biggest culprits is the mismanagement of credit card usage.
To make sure you do not get caught up in a similar situation it is imperative that you appreciate how having a credit card and the way you use it can impact on your creditworthiness.
Missed or delayed payments
If you have a fairly relaxed attitude to paying your credit card bill on time each month then you are most certainly contributing to your credit problems. Not paying your card balance timeously is one of the biggest factors for many in having a detrimental credit score. In fact if you fail to pay your card bill on time you will be hit by a “double whammy” because not only will your credit report be affected, but your card provider will levy charges for late payments
Owning several cards
From the point of view of improving your credit score it can be helpful to have a number of different sources of credit but if you take on too many – especially in the form of credit cards – it can begin to have a detrimental affect on your creditworthiness. If you are in this position try to pay a few cards off in full and then do not apply for any more until you credit picture has significantly improved.
Not owning a card
It seems counter-intuitive but not having a credit card in the first place can have the same effect as having too many. Lenders want to be able to see that you are financially responsible and having a credit card which you pay on time is one way of demonstrating this.
Always maxing out your credit limit
Just because you have a credit limit does not mean that you need to use all of it up. If possible try to keeop the ratio of your credit card debt to your credit limit at about 1:3 as lenders will regard this as another pointer towards financial responsibility. So surprisingly enough it is not the amount of debt that is critical, but rather the ration of that debt to your overall limit. For instance if you had a debt of £1000 against a credit limit of £1500. On the face of it that person would be regarded as a better risk than someone whose card balance was £3000. However, in the latter case the borrower had a credit limit of £10,000, meaning he or she was only using up 30% of their available credit, whereas the first person was using up 75% of their limit.
So you will see from the above that credit cards can have a powerful effect on your credit rating. Don’t be tempted to disregard them. Pay your bills on time, try not to max them out to the limit and do not take on too many cards and you should gradually see your credit position improving.