A good credit score is a key factor for borrowing at a low-interest rate, and with favourable repayment terms. As a result, you are less likely to get trapped in a cycle of debt.
But here is the thing…
Credit is the most heavily marketed product in the U.K.
Can’t afford it? “Get a loan”.
There are loans for everything from clothes to weddings and vehicles. And they are advertised in a way which makes it seem normal. I saw one credit card company use this slogan on a billboard: “Treat yourself. You know you deserve it.”
As a result, some people treat credit like free money.
Don’t leave this post without remembering this: The aim of any company offering credit is to get you trapped in debt so that you deposit money into their account for as long as possible. This is why they offer “minimum payments”. Pay just the minimum payment and they will increase your limits in order to entice you.
I am not against credit but know that it is a ‘game’. Here is how to win.
Credit is a powerful tool
Used properly, a good credit score is a powerful tool for pulling ahead.
Here is a simple way to get a great credit score:
1) Sign up for a low-interest credit card. If you have little to no credit history, get an Aqua card.
2) Make all your day-to-day payments on the credit card.
3) Schedule a time each month to clear the balance.
4) Don’t spend more than you have in your current account.
Do this for 3-6 months and you will see two things. Firstly, your credit card provider will raise your credit limit, and your credit score will go up. This gives you an opportunity to move up to a credit card with a lower interest rate and cancel the previous one.
When life throws financial emergencies at you, a good credit score helps you to come out the other side without a scratch. For instance, Paypal offers 0% interest on online purchases of £150 and above. But only if you have good credit. Such offers are handy during the Christmas period as that is when most people begin to feel the pinch.
Don’t bury your head in the sand
If you currently have debts to pay and feel like you are drowning, the last thing you should do is to bury your head in the sand. Most lenders will work with you in order to reduce the burden. They might give you a payment holiday, or offer monthly repayments which are lower due to being interest only.
Don’t go broke trying to look rich
Every day the media blast us with images of beautiful, photoshopped people with amazing look lives. Subconsciously we buy into these images. “Maybe my life would be better if I just bought that designer product?”
Some of the wealthiest people I have ever met wore the simplest clothes. They don’t care about impressing others because their worth is what you can’t see. They owned property and assets which paid them every month.
On the other hand, perpetually broke people buy items simply to impress others and fit in. They use credit to buy items which decrease in value over time. They look fabulous but their bank account has cobwebs. ]
Credit is best used for emergencies. Black Friday isn’t an emergency, a night out isn’t an emergency and spending to impress others isn’t an emergency. Food, shelter, healthcare and the sudden passing of a loved one are emergencies.
As you can see, it is easy to boost your credit score. If you found this post useful, please share it on social media. Feel free to drop a comment below.