Consumer credit is a perennially popular topic on finance and money forums, and we’ve addressed the subject on this blog a few times. But as we are well into a year in which many new policies affecting personal finance will be implemented, it’s a good idea to revisit this topic. The economy may be in recovery, but many consumers who were hit hard by the recession are still struggling because of poor credit. As well, many new graduates who are just getting out into the business world are wondering how they can build credit. People of all ages, from fresh graduates to people approaching retirement age, are learning the hard way how difficult it can be to maintain a reasonably comfortable lifestyle without good credit.
Negotiating the world of credit can be tricky; it’s easy to make mistakes. And notwithstanding the title of this post, it’s really more than just a game because the mistakes you make can seriously affect your standard of living. Still, there are things you can do to come out ahead – to win the credit game as it were.
What Affects Your Score
As with any other game, winning is impossible without a good score. In this one, however, a bad score isn’t forgotten with the next win. It stays with you for years, a record of your current credit accounts, your payment history, where you live, and even how involved you are in politics. Depending upon how you measure up in these and other areas, you are assigned a numeric score, which prospective lenders, landlords, employers and others will use to determine how dependable and trustworthy you are. A low score – even one that is based on erroneous information or someone else’s fraudulent actions – can do far more harm than cause you to be rejected for a loan or credit card; it can also cause you to be rejected as a renter or miss out on a job. Thankfully, there are actions you can take to improve your score and, by extension, your opportunities well beyond your relationships with lenders.
Who Is Keeping Score
There are three primary credit reference agencies keeping track of credit scores, Experian, Equifax, and Callcredit. The first two sell a paid credit report service, but offer a free 30-day trial, which you’ll need to cancel if you don’t want to keep paying for the service. Callcredit is a free service available on the Noddle website, and is based upon the information in the Equifax database. For a one-time check, you can avail yourself of the free trial accounts, but for keeping an eye on your status over the long term, you will need to set up a Callcredit account if you don’t want to keep paying every month. The only downside to such an approach is that there might be discrepancies – even significant ones – between the Experian and Equifax reports, so you could miss something important by utilising only the free service.
Getting Mistakes Corrected
Some people’s first response upon learning that they have a poor credit score is to contact one of the “credit repair” companies that advertise extensively on television and in printed periodicals. These companies promise to boost your credit score significantly by negotiating with creditors and contacting the reporting agencies to get errors corrected, but in reality, they can do nothing beyond that which you can do yourself, and they charge a hefty fee for their efforts. And if you have difficulty paying their fees, you could end up with yet another black mark on your credit score.
Better that you do the negotiating yourself and save your money for other things, like paying down your outstanding debts. If you are unsure as to how to go about checking, correcting, and improving your credit score, the government’s Money Advice Service has a wealth of free information to get you on your way.
Paying Your Outstanding Debts
Of course, the ideal would be to pay your outstanding debts down or pay them off entirely. Most creditors will work with you to make it easier for you to pull yourself out of a credit hole. Figure out how much you will be able to reliably pay each creditor every month, and call them to see if they will work with you. Of course, you will need to keep up with the payments as promised, lest you make matters even worse by making another promise, only to fail to keep it.
We’ve said it before and will no doubt say it again: Credit isn’t everything, and your credit rating doesn’t define who you are as a person. But it does define you by and large to the companies from which you wish to get a loan, make a major purchase, rent a home, or get a job. It’s nothing personal; it’s just business. Understanding how credit works is the first step towards building or repairing your own credit. And even if you aren’t planning on making a big purchase, renting a house, or looking for a new job anytime soon, boosting your credit could be the best gift you give yourself this year.