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This has been a financially tough year for the majority of the population. Back in January, few of us could have predicted that a worldwide pandemic would strike, seriously damaging much of the world’s economy with it. If you’ve managed to keep your job throughout this, you’re in luck. But for many people, the reality is that the coronavirus and Covid-19 pandemic has caused the company that they work for to collapse, has seen them made redundant or has seen them have to agree to reduced salaries or reduced working hours in order to keep their jobs. In times like this, staying afloat may seem difficult. But managing your finances could be possible and it’s important to do your utmost to keep financially afloat and manage your credit score as best possible during this time. Sure, it may be easier said than done, but if you haven’t learnt about financial management and credit scores yet, and you’re struggling to get things in order, you’re not entirely alone. You’re taught a whole lot during your time in compulsory education, but for many of us, financial management didn’t fall in alongside maths, English and science when it came to our studies. This is odd, as your finances can control and dictate your entire way of life if handled badly. But not to worry. We’re here to help. Here’s everything you need to know about your credit score and how to take care of it during these difficult times!
What Exactly Is a Credit Score?
First and foremost, you need to understand what a credit score is in order to have a good one. Put simply, a credit score, otherwise referred to as a “credit rating”, is a financial tool that professional lenders use to determine whether they should consider approving any financial services you may have applied for. These financial services can include credit cards, loans, finance plans, and mortgages. Obviously, the vast majority of people want a good credit score. Even if you make plenty of money and don’t need to take out loans or use credit, you may, further down the line, find yourself wanting a mortgage, which many people forget is a huge loan. To be able to get a mortgage, you’re going to have to build up your credit score over the years. All too many people assume that by never taking credit out, they demonstrate that they’re good with their finances and will be approved for the bigger loans like mortgages down the line. But this isn’t true. No credit score is just as bad as a bad credit score when it comes to approving loan and mortgage applications. Why? Well, sure, the lender can see that you’ve never been in need of money that isn’t your own. But at the same time, they can’t see how you behave when you are given money that’s not your own. They don’t know if you’ll repay as agreed. They don’t know if you’ll miss payments. They don’t know if you’ll exceed your credit limit. They don’t know if you’ll simply disappear with their cash. You need to prove that you’re capable of borrowing smaller sums of money and sticking to your agreement if you want to be trusted with larger sums later on.
How Important is a Good Credit Score During the Pandemic?
Now, you may be thinking that you’re not planning on buying your own house and are fine without loans or credit cards, so your credit score isn’t all too important. But generally speaking, it’s best to always have a good score just in case. This is particularly true during a pandemic. Sure, you may be fine and comfortable right now. But when it comes down to it, everyone’s job, in pretty much every industry, is relatively unstable right now. You never know when you might find yourself out of work and needing to take out a credit card or loan to get by. Now, sometimes you can get guarantor loans with no existing or a bad credit rating. But these are less than ideal for an independent adult. Most people would rather avoid asking the favour of someone being their guarantor. Plus, you may not know anyone else who’s in a comfortable and secure enough position to agree to be your guarantor or to be approved as your guarantor. Instead, non guarantor loans are ideal. To be able to get these, you generally need a good credit rating.
Getting Started
So, if you have no existing credit score right now, how do you get started with improving your credit score? Well, the answer is to take out a credit card or small loan that you can get approved on. Then, you need to use this sensibly. If you have a credit card, make sure you don’t exceed its credit limit and make payments on time, as agreed. Use the card for regular purchases that you already have the money to pay for. Pay on the credit card, then use the money you have available and would’ve usually paid with on your debit card to pay off the balance on your credit card. If you have a loan, make sure you pay the monthly repayments on time every single month. Eventually, your credit score will begin to go up, as you will be proving that you’re reliable.
Keep On Track
When you do take out a credit card or loan, it’s absolutely essential that you stay on track. If you slip into behaving irresponsibly, breaking terms of your agreement, exceeding credit limits, making late payments or any other bad behaviour, your score will begin to dip. It’s going to take patience to build a good score, but creating a bad score only takes a few mistakes or slip-ups. But if you stick at it, your score will slowly but surely become brilliant. If you find that you’re forgetful and prone to missing payments, set up a direct debit which will automatically deduct owed money from your bank account.
As you can see, there’s a lot to know when it comes to credit scores and there are a number of steps to take in order to build a good one. But hopefully, the above advice will help to get the ball rolling in the right direction.
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