If you’re thinking of establishing a business, applying for a new loan, or thinking about your financial future, you’ll need to take a look at your credit score.
Your credit score is calculated by looking at a range of factors, particularly important is what your track record is like in terms of meeting your obligations and paying back loans, but also what sort of exposure you’ve currently got.
If you’ve got a number of credit card accounts in operation, then this could be dragging your credit score down. They are increasing the credit risk that you present to any potential lender.
How do I establish a credit score?
If you’ve never borrowed any money before then that can be seen as a relatively risky proposition for potential lenders. If you’ve got no history of being able to successfully manage lines of credit or loans, then there is less certainty that you’ll be able to successfully manage any loan obligations in the future.
Setting yourself up with something as simple as a credit card is a good starting point to beginning your credit history. Even if you opt for just a small limit and always pay back the balance in full, this demonstrates to potential lenders that you know how to manage your money.
How do I rebuild my credit score?
Rebuilding your credit score takes time, it’s not something that can be done overnight. The important thing is that you begin the process. What potential lenders will be looking for is that you are effectively managing your obligations – that you’re paying your bills on time, that you are servicing any debts that you have, and that you aren’t taking on new credit that will weaken your overall position.
If you’ve had credit issues in the past, then you are going to need several years of sound credit management in order for your credit score to begin to recover.
The first step to take is to simplify your finances. A good starting point is credit card consolidation. Either transfer all of your credit cards into one single credit card account, or turn the debt that you have on credit cards into a personal loan.