The Debt Advice Online Blog

For many people, 2009 will be all about just one thing – being able to make ends meet to pay bills every month. Often half these bills are loan repayments on a car and a mortgage. After this there is the payment of credit card balances; with many credit card companies charging anything from 10% to 18% on the outstanding credit card balance. Even at 10% interest, this quickly becomes a tidy sum in the way of monthly interest for those who use their credit cards frequently.

Basically, living on credit is as bad a survival strategy as can be and it leaves nothing for an emergency. To be able to cope with emergencies, and to save something for a rainy day, you should concentrate on wiping out outstanding credit card balances. To do this you firstly should consider methods of bringing down the credit accumulated on your credit cards.

One option is to go to a bank that offers a low interest bank loan. If a bank loan is available at an interest rate lower than the interest rate of any credit card debt, then availing that loan is a viable option. Should you go for this option, then remember to go for a fixed interest rate and not a floating interest rate. A floating interest rate could sometimes become higher than the interest rate on the credit card, even if it wasn’t at the time you took the loan out. Furthermore, such a bank loan should only be taken on if you are sure to discontinue ongoing use of your credit cards, and you are certain that your monthly budget allows you to repay the loan consistently. To do otherwise would be counterproductive.

Another option is to seek out a credit card companies that offers lower interest rates if transfer an outstanding balance of a previous credit card to that company. This can be an effective money saving formula if you do some homework through the internet. In this way you can reduce the interest you are paying and start making inroads on the core debt as well; queries should be done to zero in on such a company before you commit to this option.

Of course, these are solutions for those who have already accumulated credit debt. If you are thinking about getting a credit card and don’t want to fall into this trap, then think about the fact that the best way to avoid the pitfalls is by not having credit in the first place. Controlling and limiting credit card use is the first step towards lessening credit balances. Pay cash as often as you can and use a credit card only when it is unavoidable. Try to stick with one credit card only to keep track of your spending more easily. Too many credit cards can make it easier to rack up a lot of debt inadvertently. You can avoid this by sticking with one credit card which you pay in full and regularly.

To take things one step further, using a credit card continuously to tide over ‘emergencies’ is not sufficient. What you truly need is to have a budget to manage your money more effectively, instead of relying on credit. Aim to always put something aside every month; going above and beyond paying off credit debt. Those who have too much credit should first pay it off and then concentrate on not accruing more credit. Availability of credit leads people into an illusory world of financial security; thinking they have more than they in fact do. Of course, some sort of a monthly payment for a car or house might be necessary. The key is to be savvy about what you borrow and be sure these loans are realistic for your particular situation. When you opt for a loan, be realistic about the amount you can afford to spend on your car or home loan so that the monthly payments don’t strain the budget.

To truly eliminate bad credit and to be secure that you have everything you genuinely need, then budget a small provision so that you have savings being regularly made over and above paying back credit card debt and other financial commitments. If you fail to make these provisions, then you will soon slip into a financial ‘danger zone’.

Whether you are just starting out on your financial journey, or if you are starting again after a bankruptcy, there are many things which you can do to build and improve upon your credit rating.

Here are five proven tips and hints to get you started on your path to excellent credit:

Tip#1 – Get a Copy of Your Credit Report –Have you ever seen your credit report? Do you know what is on it and what isn’t? Do you know if the information on it belongs to you or is in error? You can very easily and quickly get a free copy of your credit report online. If you have not yet done this, do it today. And, you should get a copy from each of the two credit reporting agencies because they each will have different information on you. They are: Experian and Equifax.

Tip #2 – Understand Your Credit Report – Now that you have your credit reports it is time to read through each of them and understand what everything on them is. Your name, address and employment information should be current and correct on it. Also, any credit accounts, mortgages, and vehicle loans should be listed with the correct amounts and payment histories. Make sure that if you have made all of your payments on-time that they have been reported as being on-time by your lenders.

Tip #3 – Dispute Errors in Your Credit Report – Once you have pulled your credit reports and have gone over everything on them, you need to dispute anything you find which is in error. It is estimated that something like 80% of the credit reports on U.K. citizens contain errors! Go to the website of the credit bureau and find out how to dispute errors – and then do it! It will only take a few minutes of your time but can greatly improve your credit rating.

Tip #4 – Pay Your Bills On-Time, All the Time – While it probably goes without saying, you should pay every bill, every month, on-time. However, as you are looking on your credit report, you can easily see which bills are on there and which aren’t. This can be helpful to you if you need to pay something late one month; choose something which will not show up on your credit report such as a utility bill!

Tip #5 – Use Credit Regularly – It might seem odd to you, but do you know that if you do not use credit on a regular basis that your credit scores will not be great? It is 100% true. If you do not have credit accounts then you do not have a good credit rating. To rectify this, apply for a credit card and use it regularly. Pay off your credit card each month so that you do not go into debt, but use it to build-up your credit.

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Having to file for bankruptcy is one of the most devastating financial decisions that you can have to make. People file for bankruptcy for many reasons and situations.

Where there used to be a stigma attached to filing for bankruptcy, thankfully that is no longer the case today. Many people now realize that bankruptcy is simply a financial tool which sometimes needs to be used to make someone’s live more manageable. However, just because the stigma is subsiding, the after effects of bankruptcy often linger on in the way of your credit report.

Filing for bankruptcy will totally kill your credit scores and the filing will last on your credit report for a whopping six years. However, that is basically the only two ramifications to you for filing. And, the good news is that soon after you have filed for bankruptcy, you can start to rebuild your credit and improve your scores!

One of the first things you should do after having filed for bankruptcy is to decide that you will do everything you can to avoid ever having to file again. This includes building up an emergency fund to cover unexpected expenses, and it means making a pact with yourself, and your spouse if you have one, that you will not ever let your spending or debt load get out of hand in this way again.

The second thing you should do to improve your credit post-bankruptcy is to make sure that you make any and all payments on time, each and every month. This includes paying your mortgage, car payments, and any debts which you chose to keep through the bankruptcy process. Whatever you do, do not make any late payments – for any reason at all!

In addition to these two things, you will want to approach your bank about obtaining a secured credit card. With a secured credit card you will be making a deposit in the amount of your credit line. You can used a secured credit card just as you would any other credit card, but the lender is assured of payment because if you do not make your payments they can keep the money in your savings account which is being used as collateral.

Once you have your secured credit card, you want to use it to make a purchase or two each and every month, and then make sure you pay it off each month when you receive your statement. Every month when you make your payment, the lender will be reporting your on-time payments to the credit reporting agencies. As time passes, these payments help to improve your credit scores.

It is important to note that even after bankruptcy you can still finance a vehicle or get a mortgage. However, the worse your credit scores, the higher interest rate you will pay for the loan. Sometimes when you must take on one of these bad credit or sub-prime type loans you can make the regular payments for a year or two and then refinance them for a better rate, once your credit scores have improved.

As you can see, bankruptcy is something which you can survive and even prosper after. Taking the time to rebuild your credit after your bankruptcy can insure that when you need to borrow money again, you can do it without huge costs and high interest rates.

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There is one thing, above all else, which can either negatively or positively effect your ability to borrow money. That same thing will determine the cost at which you can borrow money and the interest rate you will pay for the privilege. Sometimes that same thing even has the ability to keep you from getting the job you desire. That one thing is your credit rating.

Credit Bureaus

Every financial transaction you make, whether it is your monthly mortgage payment or your credit card balance, is potentially reported to the credit bureaus. The two major credit reporting bureaus here in the UK are Equifax and Experian. Both Equifax and Experian keep a file on every person living in the UK who has any form of income, a mortgage, or a credit card. Your credit report file details your financial history and determines your resulting credit rating score.

Your Credit Rating

Your credit rating scores are used to effect how you borrow money, the interest rates you pay for borrowed money, and potentially it is also used to judge your worthiness for a job. The higher your credit rating score, the less risk you are to loan money to and therefore the lower your interest rate you will have to pay. Additionally, if you have a higher credit score some employers view this as if you are a more stable person able to be a better employee than someone with a lower score. People with lower credit scores are seen as higher risks to loan money to and therefore pay a higher interest rate for money they borrow.

Improving Your Credit Rating

The good news, if you happen to have a lower credit rating score than you would like, is that you can do some very simple things to improve your scores. The first thing you should always do is to pay your bills on time, each and every month. By paying your bills each month on time you are showing that you are responsible with your money.
The second thing you should do to help improve your credit rating is to make sure that you are wisely using credit. A wise use of credit is to have one or two credit cards that you use on a regular basis and pay off each month when the billing statement comes. This shows that you understand how credit works and that you can afford to pay the bills as they come in.

Credit Reporting Agency Errors

It is said that one in four credit reports contains at least one error. Maybe you have a common name, or someone at the credit reporting agency simply typed in some data incorrectly, no matter what the reason is, it is very common to have errors on your credit report. You should order a copy of your credit report each year and if you find errors on it you should then follow the policies of the credit bureaus to get the errors corrected. Correcting errors on your credit report can be one of the best things you can do to boost your scores and allow you to borrow money at a lower cost.

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